Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 6.40%. Assume that the pure expecta

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Suppose The Interest Rate On A 1 Year T Bond Is 5 00 And That On A 2 Year T Bond Is 6 40 Assume That The Pure Expecta 1 (15.56 KiB) Viewed 3 times

Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 6.40%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.40% for a 2-year bond. What is the yield on a 1-year T-bond expected to be one year from now? Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places.