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

question 33

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 percent,
E(₂r₁) = 6 percent,
E(₃r₁) = 7.5 percent
E(₄r₁) = 6.85 percent
Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities.

• A) 5.00 percent, 5.50 percent, 6.16 percent, 6.33 percent
• B) 5.00 percent, 5.25 percent, 6.10 percent, 6.27 percent
• C) 5.00 percent, 5.50 percent, 6.10 percent, 6.23 percent
• D) 5.00 percent, 5.25 percent, 6.16 percent, 6.49 percent

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