Expectations Theory
Interest rates on 4-year Treasury securities are currently 5.7%, while 6-year Treasury securities yield 7.45%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Round your answer to two decimal places.
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Expected Interest Rate
The real risk-free rate is 3.1%. Inflation is expected to be 3.1% this year, 3.7% next year, and then 3.05% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Round your answer to two decimal places.
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