Use the data in the following table on Treasury securities of different maturities to answer the question: Date 1 year 2 year 3 year 03/05/2010 0.38%…
1.43%
———————————————————————————–
Source: U.S. Department of the T
reasury.
Assume that the liquidity premium theory is correct.
Also assume that on March 5, 2010 the term premium on a two
–
year Treasury note
was 0.02% and the term premium on a three
–
year Treasury note was 0.06%.
a.
Calculate the interest rate investors expected on the one
–
year Treasury bill
one year
from March 05, 2010
b.
Using the result from question (a), calculate the interest rate investors
expected on the one
–
year Treasury bill
two years
from March 05, 2010
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