Interest Rates on 1-Year,2-Year,and 3-Year Treasury Bills Are 5%,6%,and 7%,respectively

Multiple Choice

Interest rates on 1-year,2-year,and 3-year Treasury bills are 5%,6%,and 7%,respectively.Assume that the pure expectations theory holds and that the market is in equilibrium.Which of the following statements is most correct?

A) The maturity risk premium is positive.
B) Interest rates are expected to rise over the next two years.
C) The market expects one-year rates to be 5.5% one year from today.
D) Answers a,b,and c are all correct.
E) Only answers b and c are correct.