Interest Rate
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I need to know to figure this out using the pure expectations Theory.
Expectation Theory - Interest rates on 4-year Treasury securities are currently 7 percent, while 6-year Treasury securities yield are 7.5%. If pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now?
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Solution Summary
The solution explains how to calculate the yield on a security based on expectations theory
Solution Preview
In expectations theory interest rates can be expressed as
7.5% = (4*7% + 2*x)/6.
The ...
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