Question

8. Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:
1R1 = 5 percent, E(2r1) = 6 percent, E(3r1) = 7.5 percent E(4r1) = 6.85 percent