Observing the following term structure; a US treasury bond maturing in 5 years has a yield of 6% while US Treasury bond maturing in 3 years has a yield of 4%; what is the expected 2 year rate,3 years from now?

Name: Observing the following term structure; a US treasury bond maturing in 5 years has a yield of 6% while US Treasury bond maturing in 3 years has a yield of 4%; what is the expected 2 year rate,3 years from now?
Brand: Quizplus
Rating: 4.9 (54 reviews)

Question

Quizplus · Accepted Answer

(1.06)^5=(1.04)^3 * (1+x)^2
x=9.07

Observing the Following Term Structure; a US Treasury Bond Maturing