Question: Suppose we observe the 3 - year Treasury security rate ( R 3 1 ) to be 8 percent, the expected 1 - year rate

Suppose we observe the 3-year Treasury security rate (R31)
to be 8 percent, the expected 1-year rate next year E(r12)
to be 5 percent, and the expected 1-year rate the following year E(r13)
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, R11
?

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