8. Pure expectations theory The pure expectations theory, or the expectations hypothesis, asserts that long-term...
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8. Pure expectations theory The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that investors do not consider long-term bonds to be riskier than short-term bonds True False The yield on a one-year Treasury security is 5.1500%, and the two-year Treasury security has a 6.1800% yield. Assuming that the pure expectations theory is correct, what is the market's estimate of the one-year Treasury rate one year from now? 9.1694% 7.2200% 8.2308% 6.1370% two-year Treasury security. Recall that on a one-year Treasury security the yield is 5.1500% and 6.1800% on a Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.25%, what is the market's estimate of the one-year Treasury rate one year from now? 5.703596 0 6.7100% 8.5217% O 7.649490
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