Question

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?

Answer 1

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- 2x Insert Delete Format Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells BOND - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste E BI U DA E E s FMerce Center % 4.0 .00 Conditional Format Format Painter Formatting as Table Clipboard Font Alignment Number Styles E1146 fax EG EH EL E J EK EL EM 131 132 133 EN EO EP E 134 135 1R1 2.45% 136 137 E(2r1) L2 2.65% 0.10% E(3r1) L3 3.15% 0.20% 138 139 140 1R3= 1R3= 1R3= 1R3= ((1+1R1)*((1+E(2r1) + L2)*(1+E(3r1) + L3)^(1/3) - 1 ((1+0.0245)*(1+0.0265+0.0010)*(1+0.0315+0.0020))^(1/3) - 1 0.02849 2.85% 141 142 143 144 145 ANSWER: 2.85% 146 147 110 N Sheet2 AFN BANKING NOTE BIDDING, UNDERWRITING EUAC AW PM LIFE LP, IP, MRP, INFLATION YIELD WARRAN Trefund bond YIELD SPOT ferences CLEAN INVOICE PRICE Sheetl BOI 140% Rea O 0 + 07:16 04-10-2019 ELEB * 10 ENO ENG