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The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 2.85 percent and the rate on 20-year Treasury bonds is 5.10 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 10-year Treasury bond purchased ten years from today, E(10r10). (Do not round intermediate calculations. Round your answer to 2 decimal places.)Expected rate  ____.__%

Question

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 2.85 percent and the rate on 20-year Treasury bonds is 5.10 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 10-year Treasury bond purchased ten years from today, E(10r10). (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected rate  ____.__%

check_circleAnswer
Step 1

Calculation of Expected Rate:

The expected rate of 10-year Treasury Bond is 7.40%.

Excel Spreadsheet:

...
В
|Year Class Rate
Bonds
2 Treasury Bonds
3 Treasury Bonds
Expected Rate
1
10
2.85%
5.10%
20
4
7.40%
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В |Year Class Rate Bonds 2 Treasury Bonds 3 Treasury Bonds Expected Rate 1 10 2.85% 5.10% 20 4 7.40%

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