What will be the 1-year treasury rate 1 year

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If a 1-year Treasury bond currently yields 6%, and a 2-year bond currently yields 6.5% based on the expectation theory. What is the reason that the 2-year bond yields higher than the 1-year bond? If an investor buys the 2-year security and holds it to maturity, what is the value of the $1,000 bond at maturity? Assuming the expectation theory is correct, meaning that an investor who chooses to buy the 1-year bond and hold it to maturity, and then at the end of the year reinvests the proceeds in another 1-year Treasury a year from now, the investor will end up with the same amount as the first action. What will be the 1-year Treasury rate 1 year from now?

Reference no: EM133111761

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