Ask Question
12 November, 10:36

Liquidity Premium Theory One-year Treasury bills currently earn 3.45 percent. You expect that one year from now, one-year Treasury bill rates will increase to 3.65 percent. The liquidity premium on two-year securities is 0.05 percent. If the liquidity premium theory is correct, what should the current rate be on two-year Treasury securities?

+3
Answers (1)
  1. 12 November, 10:58
    0
    The current rate be on two-year Treasury securities should be 3.575%

    Explanation:

    current rate be on two-year Treasury securities

    = [ (1 + 3.45%) (1 + 3.65% + 0.05%) ]^ (1/2) - 1

    = 0.03575

    Therefore, The current rate be on two-year Treasury securities should be 3.575%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Liquidity Premium Theory One-year Treasury bills currently earn 3.45 percent. You expect that one year from now, one-year Treasury bill ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers