Interest rates on 4-year Treasury securities are currently 5.6%, while 6-year Treasury securities yield 7.45%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now

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Rivers

29 October, 06:46

Interest rates on 4-year Treasury securities are currently 5.6%, while 6-year Treasury securities yield 7.45%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now

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Viviana Stephens · Answer 1

2 year yield 4 years from now = [ (1 + 0.056) ⁶ / (1 + 0.0745) ⁴]^1/2 - 1

2 year yield 4 years from now = [ 1.3867 / 1.3329]^1/2 - 1

2 year yield 4 years from now = 1.019 - 1

2 year yield 4 years from now = 1.99%