Assume the current interest rate on a one-year Treasury bond (1R1) is 4.50 percent, the current rate on a twoyear Treasury bond (1R2) is 5.25 percent, and the current rate on a three-year Treasury bond (1R3) is 6.50 percent.

If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills during year 3 (E(3r1) or 3 f1)?

(LG 2-8)

AppendixLO1