1 suppose the interest rate on a 2-year treasury security, Ask an Expert

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1. Suppose the interest rate on a 2-year treasury security is 4.75% and the interest rate on a 5-year treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the 3-year treasury rate two years from now?

-6.53%

-7.10%

-6.85%

-7.18%

-6.45%

2. Now assume that the 2-year treasury requires a 0.15% maturity risk premium and the 5-year treasury rate has a 0.30% maturity risk premium. The interest rate on a 2-year and 5-year treasury securities is 4.75% and 6.20% respectively. What is the market’s estimate of the 3-year treasury rate two years from now?

-6.61%

-6.53%

-6.37%

-6.13%

-6.78%

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91377975

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