Interest rates on 4-year Treasury securities are currently 5.05%, while 6-year Treasury securities yield 7.95%.
If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places. Expectations Theory 4-yr. Treasury secunity yield 6-yr. Treasury secuity yield 5.05% 7.95% Algebraic solution Total return eamed on 6-year securties Total return eamed on 4-year securities Yield on 2-yr. secunties, 4 years from now Formulas #N/A #N/A #N/A Geometric solution 1+Total return eamed on 6-year securities Total return eamed on 4-year securities Yield on 2-yr. secunities, 4 years from now #N/A 1 N/A #N/A