Suppose That the Current One-Year Treasury-Bill Rate Is 3

Multiple Choice

Suppose that the current one-year Treasury-bill rate is 3.15 percent and the expected one-year rate 12 months from now is 4.25 percent. According to the unbiased expectations theory,what should be the current rate for a two-year Treasury security?

A) 3.70 percent
B) 4.15 percent
C) 2.36 percent
D) 4.74 percent
E) 5.50 percent