Suppose We Observe the Three-Year Treasury Security Rate (₁R₃) to Be

question 112

Multiple Choice

Suppose we observe the three-year Treasury security rate (₁R₃) to be 11 percent, the expected one-year rate next year E(₂r₁) to be 4 percent, and the expected one-year rate the following year E(₃r₁) to be 5 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate, ₁R₁?

• A) 18.57 percent
• B) 10.19 percent
• C) 23.19 percent
• D) 25.24 percent

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Definitions:

Night Terrors

A sleep disorder causing feelings of terror or dread, and is often accompanied by screaming, flailing, and sleepwalking, without the clear dreams of nightmares.

Nightmares

Disturbing dreams causing strong emotional responses from the sleeper, typically fear, horror, and anxiety.

EEG Record

A record of the electrical activity of the brain obtained through electrodes placed on the scalp, used in medical and research settings to analyze brain function.

Sleepwalking

A sleep disorder causing people to get up and walk around during deep sleep, unaware of their actions.