Reference no: EM132554861

Question 1: Recall that on a one-year Treasury security the yield is 5.1500% and 7.7250% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.15%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

Option 1: 12.771%

Option 2: 8.5475%

Option 3: 10.0559%

Option 4: 11.4637%

Question 2: Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.)

Option 1: 6.61%

Option 2: 5.46%

Option 3: 6.45%

Option 4: 6.69%