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According to the liquidity premium theory of the term structure of interest​ rates, if the​ one-year...

According to the liquidity premium theory of the term structure of interest​ rates, if the​ one-year bond rate is expected to be 3​%, 6​%, and 9​% over each of the next three​ years, and if the liquidity premium on a​ three-year bond is 3​%, then the interest rate on a​ three-year bond is _?

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Answer #1

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Interest rate = Liquidity premium +{[R1+R2+R3]/n}

                 = 3+ {[3+6+9]/3 }

                = 3+ { 18/3}

                = 3 + 6

              = 9%

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