Using the Expectations Hypothesis for the Term Structure of Interest

question 3

Essay

Using the expectations hypothesis for the term structure of interest rates, calculate the expected yields for securities with maturities of two and three years on the basis of the following data: $\begin{array}{cccc}\text { Yield on } 1 \text { year } \mathrm{T} \text { bill at beginning of year } 1&7.2\%\\\text { Yield on } 1 \text { year } \mathrm{T} \text { bill at beginning of year } 2&7.8\%\\\text { Yield on } 1 \text { year } \mathrm{T} \text { bill at beginning of year } 3&8.4\%\end{array}$

---

Definitions:

Operations Managers

Individuals responsible for overseeing, designing, and controlling the process of production and redesigning business operations in the production of goods or services.

Adding Capacity

The process of increasing the ability of a system or process to produce output, either by adding resources or optimizing current ones.

Robust Design

A design that can be produced to requirements even with unfavorable conditions in the production process.

Production

The process of creating, manufacturing, or producing goods and services.