Question

Suppose 2-year Treasury bonds yield 5.5%, while 1-year bonds yield 6%. r* is 1%, and the maturity risk premium is zero. Use minus sign for any negative expected inflation rate.

a. Using the expectations
theory, what is the yield on a 1-year bond 1 year from now?
Calculate the yield using a geometric average. Do not round
intermediate calculations. Round your answer to two decimal
places.

________ %

b. What is the expected
inflation rate in Year 1? Do not round intermediate calculations.
Round your answer to two decimal places.

________ %

What is the expected inflation rate in Year 2? Do not round
intermediate calculations. Round your answer to two decimal
places.

________ %

Answer #1

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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%...

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.
%

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...

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...

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...

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...

Assume that the real risk-free rate is 2% and that the maturity
risk premium is zero. If a 1-year Treasury bond yield is 6% and a
2-year Treasury bond yields 10%, what is the 1-year interest rate
that is expected for Year 2? Calculate this yield using a geometric
average. Do not round intermediate calculations. Round your answer
to two decimal places. % What inflation rate is expected during
Year 2? Do not round intermediate calculations. Round your answer
to...

Assume that the real risk-free rate is 1% and that the maturity
risk premium is zero. If a 1-year Treasury bond yield is 5% and a
2-year Treasury bond yields 6%, what is the 1-year interest rate
that is expected for Year 2? Calculate this yield using a geometric
average. Do not round intermediate calculations. Round your answer
to two decimal places.
%
What inflation rate is expected during Year 2? Do not round
intermediate calculations. Round your answer to...

1. Assume that the real risk-free rate is 2.2% and that the
maturity risk premium is zero. If a 1-year Treasury bond yield is
6.6% and a 2-year Treasury bond yields 6.8%. Calculate the yield
using a geometric average.
a. What is the 1-year interest rate that is expected for Year 2?
Do not round intermediate calculations. Round your answer to two
decimal places.
b. What inflation rate is expected during Year 2? Do not round
intermediate calculations. Round your...

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