Question

Question: Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following 3 years (i.e., years 2, 3 and 4 respectively) are as follows:

1R1 = 0.4%, E(2r1) = 1.4%, E(3r1) = 8.8% E(4r1) = 9.15%

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

Answer #1

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Unbiased Expectations Theory 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: 1R1=4.70%, E(2r1) =5.70%, E(3r1) =6.20%,
E(4r1)=6.55% Using the unbiased expectations theory, what is the
current (long-term) rate for four-year-maturity Treasury
securities?
Multiple Choice
6.5500%
5.7852%
5.7875%

Suppose that the current 1-year rate (1-year spot rate) and
expected 1-year T-bill rates over the following three years (i.e.,
years 2, 3, and 4, respectively) are as follows:
1R1 = 6%,
E(2r1) = 7%,
E(3r1) = 7.60%,
E(4r1) = 7.95%
Using the unbiased expectations theory, calculate the current
(long-term) rates for 1-, 2-, 3-, and 4-year-maturity Treasury
securities. (Round your answers to 2 decimal
places.)

Suppose that the current 1-year rate (1-year spot rate) and
expected 1-year T-bill rates over the following three years (i.e.,
years 2, 3, and 4, respectively) are as follows: 1R1 = 1%, E(2r1) =
4.25%, E(3r1) = 4.75%, E(4r1) = 6.25% Using the unbiased
expectations theory, calculate the current (longterm) rates for 1-,
2-, 3-, and 4-year-maturity Treasury securities. Plot the resulting
yield curve. (Do not round intermediate calculations. Round your
answers to 2 decimal places.)

Based on economists’ forecasts and analysis, one-year T-bill
rates and liquidity premiums for the next four years are expected
to be as follows:
1R1
=
5.65
%
E(2r1)
=
6.75
%
L2
=
0.05
%
E(3r1)
=
6.85
%
L3
=
0.10
%
E(4r1)
=
7.15
%
L4
=
0.12
%
Calculate the four annual rates. (Round your answers to 2
decimal places. (e.g., 32.16))
Annual Rates
Year 1
%
Year 2
%
Year 3
%
Year 4
%

Assume the current interest rate on a one-year Treasury bond
(1R1) is 4.50 percent, the current rate on a two-year Treasury bond
(1R2) is 5.25 percent, and the current rate on a three-year
Treasury bond (1R3) is 6.50 percent. If the unbiased expectations
theory of the term structure of interest rates is correct, what is
the one-year interest rate expected on Treasury bills during year 3
(E( 3r1) or 3 f1)?
please show how to do in excel

Based on economists’ forecasts and analysis, one-year T-bill
rates and liquidity premiums for the next four years are expected
to be as follows:
1R1
=
.50%
E(2r1)
=
.98%
L2
=
0.09%
E(3r1)
=
1.08%
L3
=
0.14%
E(4r1)
=
1.38%
L4
=
0.16%
Calculate the four annual rates. (Round your answers to 2
decimal places. (e.g., 32.16))
Year 1: 0.50%
Year 2: ____%
Year 3: _____%
Year 4: _____%

Based on economists’ forecasts and analysis, one-year T-bill
rates and liquidity premiums for the next four years are expected
to be as follows:
1R1
=
.33%
E(2r1)
=
.70%
L2
=
0.06%
E(3r1)
=
.80%
L3
=
0.15%
E(4r1)
=
1.10%
L4
=
0.16%
Identify the four annual rates. (Round your answers to 2
decimal places. (e.g., 32.16))
Annual Rates
Year
1
%
Year
2
%
Year
3
%
Year
4
%

Based on economists’ forecasts and analysis, one-year T-bill
rates and liquidity premiums for the next four years are expected
to be as follows: 1R1 = .50% E(2r1) = .75% L2 = 0.07% E(3r1) = .85%
L3 = 0.16% E(4r1) = 1.15% L4 = 0.17% Identify the four annual
rates. (Round your answers to 2 decimal places. (e.g., 32.16))
Annual Rates Year 1 .5 % Year 2 % Year 3 % Year 4 %

Based on economists’ forecasts and analysis, 1-year Treasury
bill rates and liquidity premiums for the next four years are
expected to be as follows:
R1
=
2.10
%
E(2r1)
=
3.00
%
L2
=
0.07
%
E(3r1)
=
3.40
%
L3
=
0.09
%
E(4r1)
=
3.85
%
L4
=
0.14
%
Using the liquidity premium theory, determine the current
(long-term) rates. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
YEAR 1
YEAR 2
YEAR 3...

Suppose we observe the three-year Treasury security rate
(1R3) to be 4.3 percent, the
expected one-year rate next
year—E(2r1)—to be 4.8
percent, and the expected one-year rate the following
year—E(3r1)—to be 5.6
percent. If the unbiased expectations theory of the term structure
of interest rates holds, what is the one-year Treasury security
rate? (Do not round intermediate calculations. Round your
answer to 2 decimal places. (e.g., 32.16))
one-year Treasury security rate: _______%

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