(Answered) Question suppose that the current one-year rate one-year

Finance

Question: 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 = 6%, E(₂r₁) = 7%, E(₃r₁) = 7.5%, E(₄r₁) = 7.85%

Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year maturity Treasury securities(TS). Plot the resulting yield curve.

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