Based on economists' forecasts and analysis,one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: Using the liquidity premium theory,what is the current rate on a four-year Treasury security?

Question

Quizplus · Accepted Answer

₁R₄ = [(1 + 0.0665)(1 + 0.0775 + 0.0010)(1 + 0.0785 + 0.0020)(1 + 0.0815 + 0.0025)]^1/4 − 1 = 7.73548.

Based on Economists' Forecasts and Analysis,one-Year Treasury Bill Rates and Liquidity