The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? Q1. A certificate of deposit (CD) for two years will have the same yield as a CD for one year followed by an investment in another one-year CD after one year. a. True b. False Q2. The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has a 5.9040% 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.) a. 5.8627% b. 6.8973% c. 7.8629% d. 8.7596% Q3. Recall that on a one-year Treasury security the yield is 4.9200% and 5.9040% 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 0.2%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) a. 6.4939% b. 7.403% c. 8.2473% d. 5.5198% Q4. Suppose the yield on a two-year Treasury security is 5.83%, 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? (Note: Do not round your intermediate calculations.) a. 6.45% b. 6.69% c. 5.46% d. 6.61% Please answer the four questions. It is from the same concept which is why I didn't individually send it. I did the calculation and it came out wrong. These need to have the correct answers because I have only one chance to get it right. Thank you!
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates.
Based on the pure expectations theory, is the following statement true or false?
Q1. A certificate of deposit (CD) for two years will have the same yield as a CD for one year followed by an investment in another one-year CD after one year.
a. True
b. False
Q2. The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has a 5.9040% 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.)
a. 5.8627%
b. 6.8973%
c. 7.8629%
d. 8.7596%
Q3. Recall that on a one-year Treasury security the yield is 4.9200% and 5.9040% 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 0.2%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)
a. 6.4939%
b. 7.403%
c. 8.2473%
d. 5.5198%
Q4. Suppose the yield on a two-year Treasury security is 5.83%, 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? (Note: Do not round your intermediate calculations.)
a. 6.45%
b. 6.69%
c. 5.46%
d. 6.61%
Please answer the four questions. It is from the same concept which is why I didn't individually send it. I did the calculation and it came out wrong. These need to have the correct answers because I have only one chance to get it right. Thank you!
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