4. 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% 0.91% 1.43%

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Source: U.S. Department of the Treasury.

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