The Wall Street Journal reports that the current rate on 10-year Treasury bonds

Question

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 2.50 percent and the rate on 20-year Treasury bonds is 4.75 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 10-year Treasury bond purchased ten years from today, E(10r10). (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Expected rate % The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 2.50 percent and the rate on 20-year Treasury bonds is 4.75 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 10-year Treasury bond purchased ten years from today, E(10r10). (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Expected rate % The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 2.50 percent and the rate on 20-year Treasury bonds is 4.75 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 10-year Treasury bond purchased ten years from today, E(10r10). (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Expected rate %

Explanation / Answer

Expected rate after 10 year = [{(1 + 4.75%) ^ 20} / {1 + 2.50%) ^ 10}] ^ (1 / 10) - 1

= (2.5298 / 1.2800) ^ (1 / 10) - 1

= (1.9763 ^ 0.1) - 1

= 1.0705 - 1

= 7.05%

10 year yield after 10 year will be 7.05%.

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