Assume the Current Interest Rate on a One-Year Treasury Bond

question 63

Multiple Choice

Assume the current interest rate on a one-year Treasury bond (₁R₁) is 5.50 percent, the current rate on a two-year Treasury bond (₁R₂) is 5.95 percent, and the current rate on a three-year Treasury bond (₁R₃) is 8.50 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) 13.79 percent
• B) 12.29 percent
• C) 11.69 percent
• D) 10.29 percent

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