Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 6%, E(21) = 7%, E(3r1) = 7.5%, E4r1) = 7.85% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities.
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 6%, E(21) = 7%, E(3r1) = 7.5%, E4r1) = 7.85% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities.
Chapter9: Forecasting Exchange Rates
Section: Chapter Questions
Problem 6BIC
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9
![Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3,
and 4, respectively) are as follows:
1R1 = 6%, E(21) = 7%, E(3r1) = 7.5%, E(4r1) = 7.85%
Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury
securities.
Note: Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).
Years
1
2
3
4
Current (Long-term)
Rates
%
%
%
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9f4205f4-647a-4982-959f-fa42193f3ae0%2F31bc8a11-d78f-4f4a-8007-98ae35f1573f%2Fkqakp16_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3,
and 4, respectively) are as follows:
1R1 = 6%, E(21) = 7%, E(3r1) = 7.5%, E(4r1) = 7.85%
Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury
securities.
Note: Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).
Years
1
2
3
4
Current (Long-term)
Rates
%
%
%
%
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