One-year treasury bills currently earn 3. 25 percent. You expect that one year from now, one-year treasury bill rates will increase to 3. 45 percent and that two years from now, one-year treasury bill rates will increase to 3. 95 percent. The liquidity premium on two-year securities is 0. 05 percent and on three-year securities is 0. 15 percent. If the liquidity theory is correct, what should the current rate be on three-year treasury securities?.

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05-12-2022
Mathematics

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One-year treasury bills currently earn 3. 25 percent. You expect that one year from now, one-year treasury bill rates will increase to 3. 45 percent and that two years from now, one-year treasury bill rates will increase to 3. 95 percent. The liquidity premium on two-year securities is 0. 05 percent and on three-year securities is 0. 15 percent. If the liquidity theory is correct, what should the current rate be on three-year treasury securities?.

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smecloudbird18 smecloudbird18 · Answer 1 · 2022-12-17T12:26:23-05:00

3-year treasury securities as calculated from the data will now have a rate of 3.70%.

Current interest rate is calculated as Current Interest Rate + Liquidity Premium.

Average interest for 3 Year = (3.45% + 3.95% +3.25%)/3 = 3.55

3 year security liquidity premium = 0.15%

3 year Treasury security's current rate is 3.55% +0.15%.

= 3.70%

Therefore, The current rate be on 3-year treasury securities is 3.70%.

Interest is the fee paid for having access to borrowed funds. While the interest rate used to compute interest is often reported as an annual percentage rate, interest expense or revenue is sometimes expressed as a dollar figure (APR).

The compensation a lender or financial organisation receives for giving out money is called interest. The percentage of a stockholder's ownership in a corporation that is also referred to as interest.

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