You find that the yield on a 4-year bond is 10% while that of a 2-year bond is 8%.What should be the yield on a 2-year bond beginning two years from now as predicted by the expectations' theory?

Name: You find that the yield on a 4-year bond is 10% while that of a 2-year bond is 8%.What should be the yield on a 2-year bond beginning two years from now as predicted by the expectations' theory?
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Quizplus · Accepted Answer

(1.1)⁴ = (1.08)² ´ (1 + r)² ====> (1.1)⁴ /(1.08)²= (1 + r)² =====> r = .1204

You Find That the Yield on a 4-Year Bond Is