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:

R1 = 6.90%

E(r2) = 8.00%

L2 = .35%

E(r3) = 8.10%

L3 = .45%

E(r4) = 8.40%

L4 = .50%

Using the liquidity premium hypothesis, what is the current rate on a four-year Treasury security?

Multiple Choice

• 7.8490%

• 8.9000%

• 8.1720%

• 7.8500%