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Suppose we observe the three-year Treasury security rate (1R3) to be 12%, the expected one-year rate next year E(2r1) -- to be 8%, and the
Suppose we observe the three-year Treasury security rate (1R3) to be 12%, the expected one-year rate next year E(2r1) -- to be 8%, and the expected one-year rate the following year E(3r1) -- to be 10%. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate?
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