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Liquidity Premium Hypothesis One-year Treasury bills currently earn 5.25 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.40

Liquidity Premium HypothesisOne-year Treasury bills currently earn 5.25 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.40 percent. The liquidity premium on two-year securities is .160 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?

  • 10.8100%
  • 3.6030%
  • 5.3250%
  • 5.4050%

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