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

question 31

Multiple Choice

Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:
₁R₁ = 5%,
E(₂r₁) = 5.5%,
E(₃r₁) = 6.5%,
E(₄r₁) = 7.0%
Using the unbiased expectations theory, what is the current (long-term) rate for four-year-maturity Treasury securities?

• A) 6.00 percent
• B) 6.33 percent
• C) 6.75 percent
• D) 7.00 percent

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