Assuming that the liquidity premium theory is correct, on March 5, 2010, what did investors expect the interest rate to be on the one-year Treasury bill two years from that date if the term premium on a two-year Treasury note was 0.010.01 % and the term premium on a three-year Treasury note was 0.040.04 %?

Question

Ella Day

Business

6 October, 21:05

Assuming that the liquidity premium theory is correct, on March 5, 2010, what did investors expect the interest rate to be on the one-year Treasury bill two years from that date if the term premium on a two-year Treasury note was 0.010.01 % and the term premium on a three-year Treasury note was 0.040.04 %?

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Elyse · Answer 1

The completed question is

Use the data on Treasury securities in the following table to answer the question:Date1 year2 year3 year03/05/20100.360.36% 0.860.86% 1.61.6%Source: U. S. Department of the Treasury. Assuming that the liquidity premium theory is correct, on March 5, 2010, what did investors expect the interest rate to be on the one-year Treasury bill two years from that date if the term premium on a two-year Treasury note was 0.040.04% and the term premium on a three-year Treasury note was 0.050.05%?

The expected interest rate is 3.013.01%.

Explanation:

Base on the scenario been described in the question, the interest rate in given as 3.013.01%.