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Consider the Table below, showing the interest rates on Treasury bills with different maturities. Maturity Interest rate 1 year 1.25% 2 2 year 3
Consider the Table below, showing the interest rates on Treasury bills with different maturities. Maturity Interest rate 1 year 1.25% 2 2 year 3 year 2.00% 2.50% Given the above data and assuming that the liquidity premium theory is valid, what would investors expect the interest rate to be on the one-year Treasury bill in two years from now if the term premium on a two-year Treasury bill is 0.20% and the term premium on a three-year Treasury bill is 0.40% ?
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