One-year Treasury bills yield 6 percent, while Treasury notes with 2-year maturities yield 6.7 percent. If the expectations theory holds (that is, the maturity risk premium is zero), what is the market`s forecast of what 1 year T-bills will be yielding one year from now?© BrainMass Inc. brainmass.com March 4, 2021, 7:44 pm ad1c9bdddf
This is a question of forward rate:
Assume that the ...
This solution calculates the market's forecast on the yield of a 1-year Treasury bill using the forward rate equation. All steps and formulas are shown.