One-year T-bills currently earn 0.38 percent. You expect that one year from now, one-year T-bill rates will increase to 0.44 percent.

If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities?

Question

Danna Lamb

Business

8 May, 16:35

One-year T-bills currently earn 0.38 percent. You expect that one year from now, one-year T-bill rates will increase to 0.44 percent.

If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities?

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Answers (1)

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Alani Boyer · Answer 1

One year T-bill earns 0.38

One year T-bill rates increase 0.44

Ubiased expectation theory:

R2 = [ (1+R1) (1+E (R1)) ]^1/N - 1

So, R2 = [ (1 + 0.0038) (1 + 0.0044) ]^1/2 - 1 = 0.41%

One-year T-bills currently earn 0.38 percent. You expect that one year from now, one-year T-bill rates will increase to 0.44 percent.If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities?

One-year T-bills currently earn 0.38 percent. You expect that one year from now, one-year T-bill rates will increase to 0.44 percent.

If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities?