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Suppose we observe the three-year Treasury security rate (1R3) to be 4.5 percent, the expected one-year rate next yearE(2r1)to be 4.9 percent, and the expected
Suppose we observe the three-year Treasury security rate (1R3) to be 4.5 percent, the expected one-year rate next yearE(2r1)to be 4.9 percent, and the expected one-year rate the following yearE(3r1)to be 5.5 percent. 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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