The pure expectations theory

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Reference no: EM131983109

Today, interest rates on 1-year T-bonds yield 1.6%, interest rates on 2-year T-bonds yield 2.25%, and interest rates on 3-year T-bonds yield 3.6%.

a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediate calculations. %

b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediate calculations. %

c. If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediate calculations. %

Reference no: EM131983109

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