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Liquidity Premium Hypothesis One-year Treasury bills currently earn 5.20 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.35

Liquidity Premium Hypothesis One-year Treasury bills currently earn 5.20 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.35 percent. The liquidity premium on two-year securities is .155 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?

5.2750%

5.3520%

3.5680%

10.7050%

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