Question
Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3 and 4,
Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3 and 4, respectively) are as follows: 1R1 = 5 percent, E(2r1) = 7 percent, E(3r1) = 7.5 percent E(4r1) = 7.85 percent Using the unbiased expectations theory, calculate the current (long-term) rates for one-year and two-year -maturity Treasury securities. One-year: 5.00 percent; Two-year: 5.50 percent One-year: 5.00 percent; Two-year: 6.00 percent One-year: 5.50 percent; Two-year: 6.15 percent One-year: 5.50 percent; Two-year: 5.75 percent
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