Suppose we observe the three year Treasury security rate ( 1 R 3 ) to be 6 percent, the expected one year rate next year E ( 2 r 1 ) to be 3 percent, and the expected one year rate the following year E ( 3 r 1 ) to be 5 percent If the unbiased expectations theory of the term structure of interest rates holds, what is the one year Treasury security rate, 1 R 1

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Question: Suppose we observe the three-year Treasury security rate ( 1 R 3 ) to be 6 percent, the expected one-year rate next year E (

Suppose we observe the three-year Treasury security rate (₁R₃) to be 6 percent, the expected one-year rate next year E(₂r₁) to be 3 percent, and the expected one-year rate the following year E(₃r₁) to be 5 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate, ₁R₁?

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