Question

PURE EXPECTATIONS THEORY The yield on 1-year Treasury securities is 6%, 2-year securities yield 6 2%, 3-year securities yield 6 3%, and 4-year securities yield 6 5%. There is no maturity risk premium. Using expectations theory and geometric averages, forecast the yields on the following securities: a. A 1-year security, 1 year from now b. A 1-year security, 2 years from now c. A 2-year security, 1 year from now d. A 3-year security, 1 year from now

Answer #1

A). 1-year security, 1 year from now = [(1 + 2-year securities yield)^2 / (1 + 1-year securities yield)] - 1

= [(1.062)^2 / 1.06] - 1 = **6.40%**

B). 1-year security, 2 years from now = [(1 + 3-year securities yield)^3 / (1 + 2-year securities yield)^2] - 1

= [(1.063)^3 / (1.062)^2] - 1 = **6.50%**

C). 2-year security, 1 year from now = [(1 + 3-year securities yield)^3 / (1 + 1-year securities yield)]^[1/2] - 1

= [(1.063)^3 / (1.06)]^[1/2] - 1 = **6.45%**

D). 3-year security, 1 year from now = [(1 + 4-year securities yield)^4 / (1 + 1-year securities yield)]^[1/3] - 1

= [(1.065)^4 / (1.06)]^[1/3] - 1 = **6.67%**

EXPECTATIONS THEORY Interest rates on 4-year Treasury securities
are currently 6.2%, while 6-year Treasury securities yield 7.65%.
If the pure expectations theory is correct, what does the market
believe that 2-year securities will be yielding 4 years from now?
Calculate the yield using a geometric average. Do not round your
intermediate calculations. Round your answer to two decimal places.
%

Interest rates on 4-year Treasury securities are currently 6.4%,
while 6-year Treasury securities yield 7.4%. The data has been
collected in the Microsoft Excel Online file below. Open the
spreadsheet and perform the required analysis to answer the
question below.
Expectations Theory
4-yr.
Treasury security yield
6.40%
6-yr.
Treasury security yield
7.40%
Algebraic solution:
Total
return earned on 6-year securities
Total
return earned on 4-year securities
Yield on
2-yr. securities, 4 years from now
Geometric solution:
1 +
Total return...

EXPECTATIONS
THEORY
One-year Treasury
securities yield 3.65%. The market anticipates that 1 year from
now, 1-year Treasury securities will yield 5.55%. If the pure
expectations theory is correct, what is the yield today for 2-year
Treasury securities? Calculate the yield using a geometric average.
Do not round your intermediate calculations. Round your answer to
two decimal places.
___%
EXPECTED
INTEREST RATE
The real risk-free
rate is 2.45%. Inflation is expected to be 3.25% this year, 3.6%
next year, and 2.2%...

1. Interest rates on 4-year Treasury securities are currently
5.7%, while 6-year Treasury securities yield 7.3%. If the pure
expectations theory is correct, what does the market believe that
2-year securities will be yielding 4 years from now? Calculate the
yield using a geometric average. Do not round your intermediate
calculations. Round your answer to two decimal places.

How would I put this in a financial calculator?
EXPECTATIONS THEORY
Interest rates on 4-year Treasury securities are currently 6.8%,
while 6-year Treasury securities yield 7.95%. If the pure
expectations theory is correct, what does the market believe that
2-year securities will be yielding 4 years from now? Calculate the
yield using a geometric average. Do not round your intermediate
calculations. Round your answer to two decimal places.
EXPECTATIONS THEORY
One-year Treasury securities yield 2.3%. The market anticipates
that 1...

According to the pure expectations theory, and given the current
Treasury yields shown in the table below, the expected yield on a 2
year Treasury security one year from today would
be:
Maturity (years)
Treasury Yield
1
2%
2
3%
3
5%

Problem 6-8
Expectations Theory
Interest rates on 4-year Treasury securities are currently
6.15%, while 6-year Treasury securities yield 7.85%. If the pure
expectations theory is correct, what does the market believe that
2-year securities will be yielding 4 years from now? Round your
answer to two decimal places.

Interest rates on 4-year Treasury securities are currently 6.9%,
while 6-year Treasury securities yield 7.8%. The data has been
collected in the Microsoft Excel Online file below. Open the
spreadsheet and perform the required analysis to answer the
question below.
Open spreadsheet
If the pure expectations theory is correct, what does the market
believe that 2-year securities will be yielding 4 years from now?
Calculate the yield using a geometric average. Do not round your
intermediate calculations. Round your answer...

Question 1.)
One-year Treasury securities yield 4.55%. The market anticipates
that 1 year from now, 1-year Treasury securities will yield 5.7%.
If the pure expectations theory is correct, what is the yield today
for 2-year Treasury securities? Calculate the yield using a
geometric average. Do not round your intermediate calculations.
Round your answer to two decimal places.
Question 2.)
A Treasury bond that matures in 10 years has a yield of 5.25%. A
10-year corporate bond has a yield of...

Interest rates on 3 year treasury securities are currently 5%,
while 5 year treasury securities yield 8%. If the pure expectations
theory is correct what does the market believe that 2 year
securities will be yielding 3 years from now? Answer to
the nearest hundredth of a percent as in xx.xx% and enter without
the percent sign.

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