Ask Question
3 July, 22:47

One-year Treasury bills currently earn 2.30 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 2.50 percent and that two years from now, 1-year Treasury bill rates will increase to 3.00 percent. The liquidity premium on 2-year securities is 0.15 percent and on 3-year securities is 0.25 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

+5
Answers (1)
  1. 3 July, 23:15
    0
    The current rate be on 3-year Treasury securities is 2.85%

    Explanation:

    current rate of interest = Average interest rate + liquidity premium

    Average interest rate for 3 Year = (2.30% + 2.50% + 3%) / 3

    = 2.6%

    Liquidity premium for 3 year security = 0.25%

    current rate on 3 year Treasury security = 2.6% + 0.25%

    = 2.85%

    Therefore, The current rate be on 3-year Treasury securities is 2.85%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “One-year Treasury bills currently earn 2.30 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 2.50 ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers