Question

You can observe the following Treasury yields:

Maturity	Yield
1 year	2.8%
2 years	3.2
3 years	3.7
4 years	4.5
5 years	4.6
6 years	5.0

If the pure expectations theory holds, what does the market expect will be the interest rate on two-year securities, four years from now?

Answer 1

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BOND - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut AutoSum - A Calibri Dr General -11AA = = = D- DA Wrap Text Merge & Center - BI U $ % , :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill Clear Sort & Filter Editing Find & Select Font Alignment Number Cells E Copy Paste Format Painter Clipboard KK1 - KD 1 for KE KE KG KH КК КІ км я 1R4 = 1R6 = 4.50% 5.00% 6f2 = ((1 + 1R6)^6/(1+1R4))^(1/2) - 1 ã ooo vaatwn YIELD ON 2 YEAR SECURITY, 4 YEARS FROM NOW = 6f2 = ANSWER 6f2 = [(1+0.05)^6/(1+0.045)^4 ]^(1/2)- 1 = 6.0072% 6.0% [ROUNDED TO 1 DECIMAL] 11 12 13 14 15 16 17 18 19 N Sheet2 AFN BANKING NOTE BIDDING, UNDERWRITING EUAC AW PM LIFELP, IP, MRP, INFLATION YIELD WARRANTrefund bond Y IELD SPOT ferences CLEAN INVOICE PRICE BO Sheeti 130% Rea _ 0 + E * ENG 14-08-2019