Question

The yield on a one-year Treasury security is 4.6900%, and the two-year Treasury security has a 5.6280% yield. Assuming that the pure expectations theory is correct, what is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

8.3495%

6.5744%

7.4948%

5.5882%

Recall that on a one-year Treasury security the yield is 4.6900% and 5.6280% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.3%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

6.8057%

5.9699%

5.0744%

7.5818%

Answer 1