Suppose that the current one-year rate (one-year spot rate) and expected one-yea

Question

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:

Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year maturity Treasury securities. (Round your answers to 3 decimal places. (e.g., 32.161))

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:

Explanation / Answer

For One-year

1R1 = 0.3%

For Two-year

1R2 = [(1 + 0.003)(1 + 0.013)]1/2 - 1 = 0.799%

For Three-year

1R3 = [(1 + 0.003)(1 + 0.013)(1 + 0.094)]1/3 - 1 = 3.59%

For Four-year

1R4 = [(1 + 0.003)(1 + 0.013)(1 + 0.094)(1 + 0.0975)]1/4 - 1 = 5.09%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.