Question

Suppose that the current five-year rate on a treasury security is 4.55 percent and the market...

  1. Suppose that the current five-year rate on a treasury security is 4.55 percent and the market expects the three year rate, two years from now to be 3.45%. Based on the pure expectations hypothesis, what should be the two year rate today?

    a

    5.29%
    b

    6.22%
    c

    4.18%
    d

    6.71%
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