One-year T-bills currently earn 0.44 percent. You expect that one year from now,

Question

One-year T-bills currently earn 0.44 percent. You expect that one year from now, one-year T-bill rates will increase to 0.49 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

One-year T-bills currently earn 0.44 percent. You expect that one year from now, one-year T-bill rates will increase to 0.49 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Current rate on two-year Treasury securities:

= ((1+0.44%)×(1+0.49%))^(1/2)-1

= 0.46%

Hence, Current rate on two-year Treasury securities is 0.46%

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