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. Plot the resulting yield curve.