Determinants of Interest Rates for Individual Securities The Wall Street Journal reports that the current rate on five-year Treasury bonds is 2.85 percent and on 10-year Treasury bonds is 4.35 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a five-year Treasury bond purchased five years from today, E(₅r₅).

Question

Quizplus · Accepted Answer

The expected rate on a five-year Treasury bond purchased five years from today, E(₅r₅) can be calculated using the formula: E(₅r₅) = + E(inflation rate) + ₅r_{0

Assuming the inflation rate will be 2% (based on historical averages), we can calculate the expected rate on a five-year Treasury bond purchased five years from today:

E(₅r₅) = 2.85% + 2% + (4.35% - 2.85%)

E(₅r₅) = 5.85%

Therefore, the best choice is B) 5.85 percent.}

Determinants of Interest Rates for Individual Securities the Wall Street