Interest rates on 4-year treasury securities are currently 6.9%, while 6-year treasury securities yield 7.15%. 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 intermediate calculations. round your answer to two decimal places.

7.65%

Explanation:

It use asked to find the 2 year forward rate 4 years from now. In this regards, the formula should be:

(1 + %6year)^6 = (1 + %4year)^4 * (1 + %Fwd2year)^2

We have values for 6 and 4 year and we only need the Fwd2 year rate

(1 + 0.0715)^6 / ( 1 + 0.069) ^4 = ( 1 + Fwd2year) ^ 2

Fwd2year = 7.65%

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