On May 23,20XX,the Existing or Current (Spot)one-Year,two-Year,three-Year,and Four-Year Zero-Coupon Treasury

question 65

Multiple Choice

On May 23,20XX,the existing or current (spot) one-year,two-year,three-year,and four-year zero-coupon Treasury security rates were as follows: ₁R₁ = 4.55 percent,
₁R₂ = 4.75 percent,
₁R₃ = 5.25 percent,
₁R₄ = 5.95 percent
Using the unbiased expectations theory,calculate the one-year forward rates on zero-coupon Treasury bonds for years two,three,and four as of May 23,20XX.

• A) year 1: 4.95 percent, Year 2: 6.26 percent, Year 3: 8.08 percent
• B) year 1: 3.75 percent, Year 2: 6.02 percent, Year 3: 9.00 percent
• C) year 1: 4.95 percent, Year 2: 7.26 percent, Year 3: 8.08 percent
• D) year 1: 3.65 percent, Year 2: 6.32 percent, Year 3: 11.08 percent

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Definitions:

Demand Schedules

Tables that show the relationship between the price of a good and the quantity demanded by consumers at those prices, typically illustrating the law of demand.

World Price

A good or service's price on the international market, shaped by worldwide supply and demand forces.

Per-Unit Tariff

A fixed fee charged by a government on each unit of goods imported, intended to protect domestic industries.

High Tariffs

Elevated taxes imposed on imported goods, typically used to protect domestic industries from foreign competition.