Unbiased Expectations Theory Suppose that the current one-year
rate (oneyear 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:
1R1=7%, E(2r1) =9%, E(3r1) =6.0% E(4r1)=4%
Using the unbiased expectations theory, calculate the current
(long-term) rates for
one-, two-, three-, and four-year-maturity Treasury securities.
Show your answers in
percentage form to 3 decimal places.
Note that:
Rate for a two year security
= [(1 + 1R1)(1 + E(2r1))]...