Use pure expectations hypothesis

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Reference no: EM131315963

A. The following table shows the price of $1000 face value 1-year, 2-year, 3-year, 9-year and 10-year US Treasury zero coupon bonds as of Oct. 17, 2016. Use pure expectations hypothesis to determine:

a. the expected interest rate on a 1-year bond one year from now, in year 2?

b. the expected interest rate on a 1-year bond two years from now, in year 3?

c. the expected interest rate on a 1-year bond nine years from now , in year 10?

1-yr 2-yr 3-yr 9-yr 10-yr

U.S. Treasury 992.95 983.53 969.73 860.00 837.43

B. Based on you calculations in part (A), what is the bond market telling us?

Reference no: EM131315963

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