The Wall Street Journal reports that the current rate on 5-year Treasury bonds i

Question

The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 2.15 percent and on 10-year Treasury bonds is 3.95 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 5-year Treasury bond purchased five years from today, E(5r5). (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Expected rate % ReferenceseBook & Resources

The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 2.15 percent and on 10-year Treasury bonds is 3.95 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 5-year Treasury bond purchased five years from today, E(5r5). (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Expected rate % ReferenceseBook & Resources

The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 2.15 percent and on 10-year Treasury bonds is 3.95 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 5-year Treasury bond purchased five years from today, E(5r5). (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Expected rate % ReferenceseBook & Resources

Explanation / Answer

5-year treasury bond rate = 2.15%

10-year treasury bond rate = 3.95%

Let r be the rate after 5 years from now

(1 + 2.15%)5 * (1 + r)5 = (1 + 3.95%)10

(1 + r)5 = 1.324503

1 + r = 1.3245030.2

r = 5.78%

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