Suppose That the Current One-Year Rate (One-Year Spot Rate) and Expected

question 82

Multiple Choice

Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following 3 years (i.e., years 2, 3 and 4, respectively) are as follows: ₁R₁ = 5%, E(₂r₁) = 7%, E(₃r₁) = 7.5% E(₄r₁) = 7.85%
Using the unbiased expectations theory, calculate the current (long-term) rates for one-year and two-year -maturity Treasury securities.

• A) One-year: 5.00%; Two-year: 5.50%
• B) One-year: 5.00%; Two-year: 6.00%
• C) One-year: 5.50%; Two-year: 6.15%
• D) One-year: 5.50%; Two-year: 5.75%

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Definitions:

Tooth Decay

A condition where the structure of the tooth is damaged due to bacterial activity, leading to cavities or caries.

Dentin

The hard, dense, bony tissue that forms the bulk of a tooth beneath the enamel, providing its primary structure.

Digestion

The breakdown of food to small molecules.

Starches

Complex carbohydrates that plants use to store glucose.