Question

**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%

Answer #1

The current rate on two-year treasury securities is calculated as below:

Current Rate on Two-Year Treasury Securities = [(1+ Current Rate on 1-Year Treasury Bills)*(1+ Rate on Treasury Bills One Year from Now)]^(1/2) - 1

_____

**Solution**:

Here, Current Rate on 1-Year Treasury Bills = 4.50% and Rate on Treasury Bills One Year from Now = 4.65%

Using these values in the above formula, we get,

**Current Rate on Two-Year Treasury Securities** =
[(1+4.50%)*(1+4.65%)]^(1/2) - 1= **4.5750%** (which is
**Option C**)

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?

"One-year Treasury bills currently earn 2.90 percent. You expect
that one year from now, one-year Treasury bill rates will increase
to 3.35 percent. The liquidity premium on two-year securities is
0.085 percent. If the liquidity theory is correct, what should the
current rate be on two-year Treasury securities (Round the
percentage answer to 2 decimal places)?"
3.12%
3.13%
Not possible to compute with the data provided
2.11%
3.17%

HOW DO I ENTER THIS PROBLEM INTO EXCEL?
One-year Treasury bills currently earn 4.10 percent. You expect
that one year from now, 1-year Treasury bill rates will increase to
4.30 percent. The liquidity premium on 2-year securities is 0.08
percent. If the liquidity premium theory is correct, what should
the current rate be on 2-year Treasury securities?

Liquidity Premium Hypothesis One-year Treasury bills currently
earn 2.50 percent. You expected that one year from now, one-year
Treasury bill rates will increase to 2.75 percent. The liquidity
premium on two-year securities is 0.15 percent. If the liquidity
theory is correct, what should the current rate be on two-year
Treasury securities?
1R2 =
[(1 + Real interest rate)(1 + Year 2 Rate + Liquidity risk
premium)] 1/2 – 1

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

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%

Problem 6-8
Expectations Theory
Interest rates on 4-year Treasury securities are currently
6.15%, while 6-year Treasury securities yield 7.85%. If the pure
expectations theory is correct, what does the market believe that
2-year securities will be yielding 4 years from now? Round your
answer to two decimal places.

EXPECTATIONS THEORY Interest rates on 4-year Treasury securities
are currently 6.2%, while 6-year Treasury securities yield 7.65%.
If the pure expectations theory is correct, what does the market
believe that 2-year securities will be yielding 4 years from now?
Calculate the yield using a geometric average. Do not round your
intermediate calculations. Round your answer to two decimal places.
%

How would I put this in a financial calculator?
EXPECTATIONS THEORY
Interest rates on 4-year Treasury securities are currently 6.8%,
while 6-year Treasury securities yield 7.95%. If the pure
expectations theory is correct, what does the market believe that
2-year securities will be yielding 4 years from now? Calculate the
yield using a geometric average. Do not round your intermediate
calculations. Round your answer to two decimal places.
EXPECTATIONS THEORY
One-year Treasury securities yield 2.3%. The market anticipates
that 1...

Suppose that the interest rate on a one-year Treasury bill is
currently 7% and that investors expect that the interest rates on
one-year Treasury bills over the next three years will be 8%, 9%,
and 7%. Use the expectations theory to calculate the current
interest rates on two-year, three-year, and four-year Treasury
notes. The current interest rate on two-year Treasury notes
is______%.
(Round your response to two decimal places.)The
current interest rate on three-year Treasury notes is
______%.
(Round your...

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