The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury
ID: 2821697 • Letter: T
Question
The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has a 5.9000% 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? O 5.856596 e) 6.8900% o 8.7503% 7.854696 Recall that on a one-year Treasury security the yield is 4.9200% and S.9000% 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 itis 0.1s00%, what is the market's estimate of the one-year Treasury rate one year from now? o 6.5900% O 8.3690% 7.5130% o 5.6020% Suppose the yield on a two-year Treasury secunty is s.839, and the yield on a five-year Treasury security is 6.20% Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now? 5.46% 6.53% o 6.45% 0 7.10%
Explanation / Answer
Ans 1) one year treasry rate from one year from now = 1.059^2/1.0492 - 1 = 6.89%
Asn 2) one year treasry rate from one year from now = (1 + (.059 - .0015))^2/1.0492 - 1 = 6.59%
Ans 3) three year treasury rate from two year from now = cube root(1.062^5/1.0583^2) - 1 = 6.45%
Ans 4) a) Downward sloping interest rate curve
b) Flat interest rate curve
c) U shaped interst rate curve ( inverted interest rate curve)
d) Upward sloping interest rate curve.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.