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Arial - 12 D- - -A % Alignment Number - B I U - Conditional Format as Cell Formatting Table Styles Styles Cells - Editing

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Arial - 12 D- - -A % Alignment Number - B I U - Conditional Format as Cell Formatting Table Styles Styles Cells - Editing Clipboard Font D15 D E F G H Assume the current interest rate on a 1-year Treasury bond (R) is 6.50 percent, the current rate on a 2-year Treasury bond (R) is 7.25 percent, and the current rate on a 3-year Treasury bond GR) is 8.50 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the 1-year forward rate expected on Treasury bills during year 3, 3,? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 6.50% 7.25% 8.50%

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