Multiple Choice
Suppose we observe the three-year Treasury security rate (1R3) to be 11 percent, the expected one-year rate next year E(2r1) to be 4 percent, and the expected one-year rate the following year E(3r1) to be 5 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate, 1R1?
A) 18.57 percent
B) 10.19 percent
C) 23.19 percent
D) 25.24 percent
Correct Answer:
Verified
Correct Answer:
Verified
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