Problem 6-25 Unbiased Expectations Theory (LG6-5)

Suppose we observe the 3-year Treasury security rate (1R3) to be 6 percent, the expected 1-year rate next yearE(2r1)to be 2 percent, and the expected 1-year rate the following yearE(3r1)to be 3 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year Treasury security rate, 1R1? (Round your answer to 2 decimal places.)

Treasury security rate %