Answer:
7.5430%
Explanation:
Treasury securities are the governmental bills, notes, and bonds.
Yield is the amount you earn by holding on to these treasury securities.
Given yield on 1-year Treasury security = 5.38% = 0.0538
and
yield on 2 year Treasury security = 6.456% = 0.06456
THe formula to use would be:
[tex]\frac{(1+r_{2})^n}{(1+r_{1})^n}-1[/tex]
Where
[tex]r_2[/tex] is the yield of 2 year security (here, n = 2)
and
[tex]r_1[/tex] is the yield of 1 year security ( here, n = 1)
Now, substituting, we get:
[tex]\frac{(1+r_{2})^n}{(1+r_{1})^n}-1\\=\frac{(1+0.06456)^2}{(1+0.0538)}-1\\=0.075430[/tex]
Converting this to percentage:
0.075430 * 100 = 7.5430%
