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Liquidity premium hypothesis

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Liquidity Premium Hypothesis

One-year Treasury bills currently earn 5.75 percent. You expect that one year from now, one-year Treasury bill rates will increase to 6.00 percent. The liquidity premium on two-year securities is .100 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?

Reference no: EM132645520

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