ZuoTi.Pro
Question

One-year Treasury bills currently earn 5.40 percent. You expect that one year from now, one-year Treasury...

One-year Treasury bills currently earn 5.40 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.55 percent. The liquidity premium on two-year securities is .175 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?

  • 11.1250%

  • 3.7080%

  • 5.4750%

  • 5.5620%

business   finance   
1 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

✔ Recommended Answer
Answer #1

D. 5.5620%

1R2 = [(1 + 0.0540)(1 + 0.0555 + 0.00175)]0.5 - 1 = 5.5620%

1 1
Add a comment
Know the answer?
Add Answer to:
One-year Treasury bills currently earn 5.40 percent. You expect that one year from now, one-year Treasury...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Similar Homework Help Questions

  • One-year Treasury bills currently earn 2.80 percent. You expect that one year from now, 1-year Treasury...

    One-year Treasury bills currently earn 2.80 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.00 percent and that two years from now, 1-year Treasury bill rates will increase to 3.50 percent. The liquidity premium on 2-year securities is 0.10 percent and on 3-year securities is 0.20 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to...

  • One-year Treasury bills currently earn 3.25 percent. You expect that one year from now, 1-year Treasury...

    One-year Treasury bills currently earn 3.25 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.45 percent and that two years from now, 1-year Treasury bill rates will increase to 3.95 percent. The liquidity premium on 2-year securities is 0.10 percent and on 3-year securities is 0.20 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to...

  • One-year Treasury bills currently earn 2.85 percent. You expect that one year from now, 1-year Treasury...

    One-year Treasury bills currently earn 2.85 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.05 percent and that two years from now, 1-year Treasury bill rates will increase to 3.55 percent. The liquidity premium on 2-year securities is 0.10 percent and on 3-year securities is 0.20 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to...

  • One-year Treasury bills currently earn 3.75 percent. You expect that one year from now, 1-year Treasury...

    One-year Treasury bills currently earn 3.75 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.95 percent. The liquidity premium on 2-year securities is 0.08 percent. If the liquidity theory is correct, what should the current rate be on 2-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current Rate=

  • One-year Treasury bills currently earn 2.45 percent. You expect that one year from now, 1-year Treasury...

    One-year Treasury bills currently earn 2.45 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 2.65 percent and that two years from now, 1-year Treasury bill rates will increase to 3.15 percent. The liquidity premium on 2-year securities is 0.10 percent and on 3-year securities is 0.20 percent. What should the current rate be on 3-year Treasury securities?

  • Unbiased Expectations Theory One-year Treasury bills currently earn 5.35 percent. You expect that one year from...

    Unbiased Expectations Theory One-year Treasury bills currently earn 5.35 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.50 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? 5.5000% 5.4250% 10.8500% 5.3500%

  • One-year T-bills currently earn 0.38 percent. You expect that one year from now, one-year T-bill rates...

    One-year T-bills currently earn 0.38 percent. You expect that one year from now, one-year T-bill rates will increase to 0.44 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Current rate on two-year Treasury securities %

  • One-year T-bills currently earn 0.36 percent. You expect that one year from now, one-year T-bill rates...

    One-year T-bills currently earn 0.36 percent. You expect that one year from now, one-year T-bill rates will increase to 0.41 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Current rate on two-year Treasury securities

  • One-year Treasury securities yield 6%. The market anticipates that 1-year from now 1-year Treasury securities will...

    One-year Treasury securities yield 6%. The market anticipates that 1-year from now 1-year Treasury securities will yield 7.5%. If the pure expectations theory is correct, what should be the yield today for 2-year Treasury securities? The real risk-free rate of interest is 1.7%. Inflation is expected to be 5% this year and 6% during the next 2 years. Assume that the maturity risk premiums is zero. What is the yield on 1-year treasury securities? Suppose you and other investors expect...

  • Suppose that the interest rate on a one-year Treasury bill is currently 3% and that investors...

    Suppose that the interest rate on a one-year Treasury bill is currently 3% and that investors expect that the interest ratos on one-year Treasury bills over the next three years will be 4%, 5%, and 3%. Use the expectations theory to calculate the current interest rates on two-year, three-year, and four-year Treasury notes The current interest rate on two-year Treasury notes is % (Round your response to two decimal places.) The current interest rate on three-year Treasury notes is %...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT