Observe the three year treasury rate (1r3) to be 5.2 percent, expected 1 year rate next...
Observe the three year treasury rate (1r3) to be 5.2 percent, expected 1 year rate next year -E(2r1)-to be 6.2%, and theexpect one year rate the following year-E(3r1)- to be6.8 percent. If unbiased theory of the term structure of interest rates hold, whats the one year Treasury security rate?
Homework Answers
Based on unbiased expectations theory,
(1 + 3 Yr Rate)3 = (1 + 1 Yr rate) * (1 + 1 Yr rate 1 Yr from now) * (1 + 1 Yr rate 2 Yr from now)
(1 + 5.2%)3 = (1 + 1 Yr rate) * (1 + 6.2%) * (1 + 6.8%)
1.164253 = (1 + 1 Yr rate) * (1.062) * (1.068)
1.164253 = (1 + 1 Yr rate) * 1.134216
(1 + 1 Yr rate) = 1.0265
1 Yr rate = 0.0265 = 2.65%
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Observe the three year treasury rate (1r3) to be 5.2 percent,
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Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the...
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Round your answers to 2 decimal
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11. Suppose we observe the three-year Treasury security rate (R3) to be 12 percent, the expected one-year rate next year- Eg) to be 8 percent, and the expected one-year rate the following yearE)-to be 10 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate? (LG 2-7) 19.
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Round your answers to 2 decimal
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1 _____.__%
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