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 should be the current rate on four-year Treasury securities?

Question

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 should be the current rate on four-year Treasury securities?

Quizplus · Accepted Answer

₁R₄ = [(1 + 0.0595)(1 + 0.0625 + 0.0005)(1 + 0.0675 + 0.0010)(1 + 0.0715 + 0.0012)]^1/4 − 1 = 6.59%.

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