Question: Assume the current interest rate on a 1 year Treasury bond
Assume the current interest rate on a 1-year Treasury bond (1R1) is 4.50 percent, the current rate on a 2-year Treasury bond (1R2) is 5.25 percent, and the current rate on a 3-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 1-year forward rate expected on Treasury bills during year 3, 3f1?
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