Suppose that the current one-year rate and expected one-year T-bill rates over the following three years (i.e., year 2, 3, and 4, respectively) are as follows: 1R1 = 5%, E(2r1)=6%, E(3r1)= 7%, E(4r1)=7.5% Using the unbiased expectations theory, calculate the current rates for three-year and four-year Treasury securities.

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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Suppose that the current one-year rate and expected one-year T-bill rates over the following three years (i.e., year 2, 3, and 4, respectively) are as follows: 1R1 = 5%, E(2r1)=6%, E(3r1)= 7%, E(4r1)=7.5%

Using the unbiased expectations theory, calculate the current rates for three-year and four-year Treasury securities.

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