Suppose that the current one-year rate (one-year spot rate) and expected one-yea

Question

Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:

Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year maturity Treasury securities. (Round your answers to 3 decimal places. (e.g., 32.161))

Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:

Explanation / Answer

1 year -> 0.3

2 year -> ( 0.3 + 1.3 ) / 2 = 0.8

3 year -> ( 0.3 + 1.3 + 8.9 ) / 3 = 3.5

4 year -> ( 0.3 + 1.3 + 8.9 + 9.25 ) / 4 = 4.9375

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