Unbiased expectations theory of the term structure

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Unbiased Expectations Theory

Suppose we observe the 3-year Treasury security rate (1R3) to be 6 percent, the expected 1-year rate next year—E(2r1)—to be 2 percent, and the expected 1-year rate the following year—E(3r1)—to be 3 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year Treasury security rate, 1R1? (Round your answer to 2 decimal places.)

Treasury security rate %

Reference no: EM131356182

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