One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury...

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One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities?

Robert · Accepted Answer

Question: 
 One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury 
securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2-year 
Treasury securities? 
Solution: 
(1+5%)(1+6%) = (1+X%)² 
1.05•1.

One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for...

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