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In: Economics

Current interest rates for Treasury securities of different maturities are as follows:

Current interest rates for Treasury securities of different maturities are as follows:

1-year: 1.50%
2-year: 2.25%
3-year: 3.25%


Assuming the liquidity premium theory is correct, what did investors think the interest rate would be on the one-year Treasury bill in two years if the term premium on a two-year Treasury note is 0.15% and the term premium on a three-year Treasury note is 0.25%?

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Expert Solution

Answer : 4.8%

Rahul Sunny answered 2 years ago
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