The current one-year T-bill rate is .40 percent and the expected one-year rate 12 months from...

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The current one-year T-bill rate is .40 percent and the expected one-year rate 12 months from...

The current one-year T-bill rate is .40 percent and the expected one-year rate 12 months from now is .80 percent. According to the unbiased expectations theory, what should be the current rate for a two-year Treasury security?

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Answer 1

Answer #1

Current two-years rate:

= ((1+0.4%)×(1+0.8%))^(1/2)-1

= 0.60%

Hence, Current two-years rate is 0.60%

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Answer 2

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