5. Forecasting Interest Rates Assume the current interest rate on a one-year Treasury bond (1R1) is 5.00 percent, the current rate on a two-year Treasury bond (1R2) is 5.75 percent, and the current rate on a three-year Treasury bond (1R3) is 6.25 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills during year 3, 3f1?

Question

5.  Forecasting Interest Rates Assume the current interest rate on a one-year Treasury bond (1R1) is 5.00 percent, the current rate on a two-year Treasury bond (1R2) is 5.75 percent, and the current rate on a three-year Treasury bond (1R3) is 6.25 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills during year 3, 3f1?