Question: Suppose we observe the 3 year Treasury security rate 1R3 to
Suppose we observe the 3-year Treasury security rate (1R3) to be 8 percent, the expected 1-year rate next year,(E(2r1), to be 4 percent, and the expected 1-year rate the following year, E(3r1), to be 6 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year Treasury security rate, 1R1?
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