one-year treasury bills currently earn 4.15 percent. you expect that one year fr

Question

one-year treasury bills currently earn 4.15 percent. you expect that one year from now, 1-year treasury bill rates will increase to 4.35 percent. the liquidity premium on 2-year securities is 0.09 percent. if the liquidity theory is correct what should the current rate be on a 2-year treasury securities one-year treasury bills currently earn 4.15 percent. you expect that one year from now, 1-year treasury bill rates will increase to 4.35 percent. the liquidity premium on 2-year securities is 0.09 percent. if the liquidity theory is correct what should the current rate be on a 2-year treasury securities one-year treasury bills currently earn 4.15 percent. you expect that one year from now, 1-year treasury bill rates will increase to 4.35 percent. the liquidity premium on 2-year securities is 0.09 percent. if the liquidity theory is correct what should the current rate be on a 2-year treasury securities

Explanation / Answer

One year treasury bill rate = 4.15%

One year from now, 1-year treasury bill rates = 4.35%

Liquidity Premium = 0.09%

1R2 = [(1 + 0.0415) * (1 + 0.0435 + .0009)]0.5- 1

1R2 = 4.29%

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