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C Secure https://newconnect.mheducation.com/flow/connect.html CH2-Quiz6 Saved Help Save & Exit Submit Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three 9 years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1-0.3%, Ear 1) -1.3%, E(3r1) -9.2%, E(4E1) -9.55% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year- 2 points maturity Treasury securities. (Round your answers to 3 decimal places. (e.g., 32.161)) Current (Long-Term) Rates 00:18:39 One-year Two-year Three-year Four-year

Explanation / Answer

Solution:

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One year = 0.300%

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Two-year = ((1+0.3%)*(1+1.3%))^(1/2) -1 = 0.799%

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Three-year = ((1+0.3%)*(1+1.3%)*(1+9.2%))^(1/3) -1 = 3.525%

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Four-year = ((1+0.3%)*(1+1.3%)*(1+9.2%)*(1+9.55%))^(1/4) -1 = 4.999%

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