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what does the market expect the 1-year Treasury rate to be six years

what does the market expect the 1-year Treasury rate to be six years

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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**Transcript for Educational Use:** *The Wall Street Journal* reports that the rate on 6-year Treasury securities is 1.30 percent and the rate on 7-year Treasury securities is 1.85 percent. According to the unbiased expectations theories, what does the market expect the 1-year Treasury rate to be six years from today, \(E_{(7\!1)}\)? *(Do not round intermediate calculations. Round your answer to 2 decimal places.)* --- This text outlines a financial problem involving the calculation of expected future interest rates based on current Treasury securities rates. The concept is rooted in the unbiased expectations theory which suggests that long-term interest rates can be used to predict future short-term interest rates. The problem requires applying this theory to calculate the expected 1-year Treasury rate six years from now, given the rates for 6-year and 7-year Treasury securities. It is important to maintain precision during intermediate calculations but round the final answer to two decimal places.
Transcribed Image Text:**Transcript for Educational Use:** *The Wall Street Journal* reports that the rate on 6-year Treasury securities is 1.30 percent and the rate on 7-year Treasury securities is 1.85 percent. According to the unbiased expectations theories, what does the market expect the 1-year Treasury rate to be six years from today, \(E_{(7\!1)}\)? *(Do not round intermediate calculations. Round your answer to 2 decimal places.)* --- This text outlines a financial problem involving the calculation of expected future interest rates based on current Treasury securities rates. The concept is rooted in the unbiased expectations theory which suggests that long-term interest rates can be used to predict future short-term interest rates. The problem requires applying this theory to calculate the expected 1-year Treasury rate six years from now, given the rates for 6-year and 7-year Treasury securities. It is important to maintain precision during intermediate calculations but round the final answer to two decimal places.
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