Question

You observe the following yields on Treasury securities of various maturities:

Maturity. Yield 3 years6.46 years6.59 years6.812 years7.015 years7.2

1 yr. 6.0%

3 yrs. 6.4%

6 yrs. 6.5%

9 yrs. 6.8%

12 yrs. 7.0%

15 yrs. 7.2%

Using the expectations theory, forecast the interest rate on 9-yearTreasuries, six years from now. (That is, what will be the yield on9-year Treasuries, issued in 6 years’ time?)

a. 6.50%

b. 6.65%

c. 6.80%

d. 7.67%

e. 8.00%

Please provide step-by-step explanation and answers. Thanks!

Answer 1

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