Forecasting Interest Rates Assume the Current Interest Rate on a One-Year

question 87

Multiple Choice

Forecasting Interest Rates Assume the current interest rate on a one-year Treasury bond (₁R₁) is 5.00 percent, the current rate on a two-year Treasury bond (₁R₂) is 5.75 percent, and the current rate on a three-year Treasury bond (₁R₃) is 6.25 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills during year 3, ₃f₁?

• A) 5.00%
• B) 5.67%
• C) 7.26%
• D) 8.00%

---

Definitions:

Relative Worth

The value or importance of something in comparison to another.

Unions

Organizations that represent the interests of workers in specific industries or trades, often engaged in collective bargaining and rights advocacy.

National Cultural Differences

Variations in the customs, values, traditions, and social behaviors that exist between countries or cultures.

Global Strategy

A business approach that considers the entire world as a potential market and integrates operations and strategies across countries to achieve competitive advantage.