Assuming the pure expectations theory-actual interest rate
Course:- Financial Management
Reference No.:- EM131058116

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Date 1mo 3mo 6mo 1yr 2yr 3yr 4yr 5yr 10yr 20yr 30yr

3/2/15 .02 .03 .11 .24 .66 .93 1.17 1.41 1.71 1.92 2.51

3/2/16 .29 .33 .50 .68 .85 .98 1.19 1.31 1.83 2.28 2.70

Above is data for US Treasury yields on March 2, 2015 and March 2, 2016.

A. On March 2, 2015, assuming the pure expectations theory is correct, what was the expected interest rate on a 1-year bond one year later? How does this compare with the actual interest rate on a 1-year bond one year later?

B. Using the data for March 2, 2016 and assuming the pure expectations theory is correct, what is the expected interest rate on 1-year bonds, one, two, three, and four years from now.

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