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The Wall Street Journal reports that the rate on four-year Treasury securities is 5.60 percent and the rate on five-year Treasury securities is 6.15 percent. According to the unbiased expectations theory, what does the market expect the one-year Treasury rate to be four years from today, E(5r1)?

Respuesta :

Karabo99

Answer:

The market expect the one-year Treasury rate to be four years from today, E(5r1) to be 8.379%

Explanation:

1 + 1R5 = [(1 + 1R4)^4(1 + E(5r1))]1/5

1.0615 = [(1.056)^4(1 + E(5r1))]1/5

(1.0615)5 = (1.0456)^4(1 + E(5r1))

1 + E(5r1) = (1.0615)5/(1.0456)^4

E(5r1) = 8.379%

Therefore, The market expect the one-year Treasury rate to be four years from today, E(5r1) to be 8.379%

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