The pure expectations theory or the expectations hypothesis

Last updated: 6/12/2023

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 a one year bond purchased today will have the same return as a one year bond purchased five years from now False O True The yield on a one year Treasury security is 5 3800 and the two year Treasury security has a 6 4560 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 Note Do not round your intermediate calculations 7 543 9 5796 6 4116 8 599 Recall that on a one year Treasury security the yield is 5 3800 and 6 4560 on a two year Treasury security Suppose the one year security does not have a maturity risk premium but the two year security does and it is 0 45 What is the market s estimate of the one year Treasury rate one year from now Note Do not round your intermediate calculations 7 5647