Assume the unbiased expectations theory is true throughout this question. A. The current one-year Treasury bill rate
Question:
Assume the unbiased expectations theory is true throughout this question.
A. The current one-year Treasury bill rate is 5.2 percent and the expected one-year rate 12 months from now is 5.8 percent. What should be the current rate for a two-year Treasury security?
B. Suppose we observe the following rates: current one-year rate 1R1 = 8%, current two-year rate 1R2 = 10%. What is the one-year interest rate expected one year from now, E(2r1)?
C. Suppose the yield curve is inverted (i.e., interest rates/yields of longer maturity Treasuries are lower than that of shorter maturity Treasuries). What does this imply about the expectation of the movement of short-term interest rates in the future? Will it go up, go down, or stay roughly unchanged?
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders