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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?

Respuesta :

emmanuelkossy

Answer:

6.45%

Explanation:

A three year treasury rate two years from now  is = ((1+6.20%)^5/(1+5.83%)^2)^(1/3)-1

(1+0.062)^5/(1+0.0583)^2)^(1/3)-1

= 6.45%

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