Question

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)?

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Answer #1

Unbiased Expectations Theory One-year Treasury
bills currently earn 4.50 percent. You expect that one year from
now, one-year Treasury bill rates will increase to 4.65 percent. If
the unbiased expectations theory is correct, what should the
current rate be on two-year Treasury securities?
4.5000%
9.1500%
4.5750%
4.6500%

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...

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 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: _______%

The table below shows current and expected future one-year
interest rates. Year One-Year Bond Rate 1= 3% 2= 4% 3.=5% 4.= 8% A.
Assuming that the expectations theory is the correct theory of the
term structure, calculate the current interest rate for a four-year
bond (predicted by that theory). Show your work and include a
one-sentence explanation. B. Assume now that the liquidity premium
theory is the correct theory of the term structure. If the actual
interest rate on a...

Unbiased Expectations Theory One-year Treasury bills currently
earn 5.30 percent. You expect that one year from now, one-year
Treasury bill rates will increase to 5.45 percent. If the unbiased
expectations theory is correct, what should the current rate be on
two-year Treasury securities?

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.)

Today’s one-year zero rate is 6.50% pa. The unanimous forecast
among bond dealers is that, a year from today, the term structure
of interest rates will be: 7.00% pa (for 1 year), 9.15% pa (for 2
years) and 10.00% pa (for 3 years).
Assume that the pure expectations theory of the term structure is
correct. What is today’s term structure? That is, what are today’s
interest rates (pa) for terms of 1, 2, 3 and 4 years? Show your
calculations.

Today’s one-year zero rate is 6.50% pa. The unanimous forecast
among bond dealers is that, a year from today, the term structure
of interest rates will be: 7.00% pa (for 1 year), 9.15% pa (for 2
years) and 10.00% pa (for 3 years).
Assume that the pure expectations theory of the term structure is
correct. What is today’s term structure? That is, what are today’s
interest rates (pa) for terms of 1, 2, 3 and 4 years? Show your
calculations.

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.)

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