Question

**HOW DO I ENTER THIS PROBLEM INTO EXCEL?**

One-year Treasury bills currently earn 4.10 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 4.30 percent. The liquidity premium on 2-year securities is 0.08 percent. If the liquidity premium theory is correct, what should the current rate be on 2-year Treasury securities?

Answer #1

HI

Below is the excel formula and values to find out 2 year treasury securities:

One year current rate | 4.10% |

Treasury rate after 1 year | 4.30% |

liquidity premium | 0.08% |

time t | 2 |

Current rate on 2 year treasury securities |
4.24% |

**Hence the answer is 4.24%**

**Thanks**

"One-year Treasury bills currently earn 2.90 percent. You expect
that one year from now, one-year Treasury bill rates will increase
to 3.35 percent. The liquidity premium on two-year securities is
0.085 percent. If the liquidity theory is correct, what should the
current rate be on two-year Treasury securities (Round the
percentage answer to 2 decimal places)?"
3.12%
3.13%
Not possible to compute with the data provided
2.11%
3.17%

Unbiased Expectations Theory One-year Treasury bills currently
earn 5.30 percent. You expect that one year from now, one-year
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expectations theory is correct, what should the current rate be on
two-year Treasury securities?

Unbiased Expectations Theory One-year Treasury
bills currently earn 4.50 percent. You expect that one year from
now, one-year Treasury bill rates will increase to 4.65 percent. If
the unbiased expectations theory is correct, what should the
current rate be on two-year Treasury securities?
4.5000%
9.1500%
4.5750%
4.6500%

Interest rates on 3 year treasury securities are currently 5%,
while 5 year treasury securities yield 8%. If the pure expectations
theory is correct what does the market believe that 2 year
securities will be yielding 3 years from now? Answer to
the nearest hundredth of a percent as in xx.xx% and enter without
the percent sign.

Problem 6-8
Expectations Theory
Interest rates on 4-year Treasury securities are currently
6.15%, while 6-year Treasury securities yield 7.85%. If the pure
expectations theory is correct, what does the market believe that
2-year securities will be yielding 4 years from now? Round your
answer to two decimal places.

Suppose that the interest rate on a one-year Treasury bill is
currently 7% and that investors expect that the interest rates on
one-year Treasury bills over the next three years will be 8%, 9%,
and 7%. 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
______%.
(Round your...

Problem 6-11 Liquidity Premium Theory (LG6-7)
Based on economists’ forecasts and analysis, 1-year Treasury
bill rates and liquidity premiums for the next four years are
expected to be as follows:
R1
=
0.55
%
E(2r1)
=
1.70
%
L2
=
0.08
%
E(3r1)
=
1.80
%
L3
=
0.12
%
E(4r1)
=
2.10
%
L4
=
0.14
%
Using the liquidity premium theory, determine the current
(long-term) rates. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)

One-year government bonds yield 6.9 percent and 3-year
government bonds yield 3.8 percent.
Assume that the expectations theory holds. What does
the market believe the rate on 2-year
government bonds will be one year from today?
2.05%
2.45%
2.35%
2.15%
2.25%
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percent. Inflation is expected to be 2 percent this
coming year, jump to 3 percent next year, and increase to 4
percent the year after (Year 3).
According to the expectations theory, what...

Assume the current interest rate on a one-year Treasury bond
(1R1) is 4.50 percent, the current rate on a two-year Treasury bond
(1R2) is 5.25 percent, and the current rate on a three-year
Treasury bond (1R3) is 6.50 percent. If the unbiased expectations
theory of the term structure of interest rates is correct, what is
the one-year interest rate expected on Treasury bills during year 3
(E( 3r1) or 3 f1)?
please show how to do in excel

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