You observe the following term structure for Treasury bills: Yield (%) 5.1 5.4 5.6 5.8 6.1 Maturity 1 year 2 years 3 years 4 years 5 years Assume that the pure expectations theory holds. What does the market expect will be the yield on 1-year Treasury securities three years from today?

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Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.