Assume That the Expectations Theory of Term Structure Holds

question 27

Multiple Choice

Assume that the expectations theory of term structure holds.If the rate on a two-year Treasury bond is 8% and the rate on a three-year Treasury bond is 7%,what is the expected rate on a one-year Treasury bond in year three?

• A) 8%
• B) 7%
• C) 6%
• D) 5%
• E) 4%

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