Given the following pure expectations information:
• 1-year note yield = 7.43% 4-year note yield = 7.21%
• 2-year note yield = 7.49% 5-year note yield = 7.53%
• 3-year note yield = 7.05% 6-year note yield = 7.53%
Given constant premiums of 0, .06%, .11%, .14%, .16%, and .165%.
a. Assuming pure expectations, calculate the expected yields for someone who purchases a 2-year note, a 1- year note, a 2-year note, and then a 1-year note in consecutive order (thus they are lending for the next 6 years).
b. Calculate the expected real world yield for a person who purchases a 3-year note today and then another 3-year note when that first one matures (again lending for 6 years).
c. Determine the expected real world yield on a 5-year note purchased today.