A. The following table shows the price of $1000 face value 1-year, 2-year, 3-year, 9-year and 10-year US Treasury zero coupon bonds as of Oct. 17, 2016. Use pure expectations hypothesis to determine:
a. the expected interest rate on a 1-year bond one year from now, in year 2?
b. the expected interest rate on a 1-year bond two years from now, in year 3?
c. the expected interest rate on a 1-year bond nine years from now , in year 10?
1-yr 2-yr 3-yr 9-yr 10-yr
U.S. Treasury 992.95 983.53 969.73 860.00 837.43
B. Based on you calculations in part (A), what is the bond market telling us?