The Following Are the Expected One-Year T-Bill Rates for the Next

question 38

Multiple Choice

The following are the expected one-year T-bill rates for the next four years: 2%, 3%, 4%, and 5%. According to the basic model of the expectations hypothesis, what would you expect the rate for four-year securities to be?

• A) 4.5%
• B) 4.25%
• C) 3%
• D) 3.5%

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