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HOW DO I ENTER THIS PROBLEM INTO EXCEL? One-year Treasury bills currently earn 4.10 percent. You...

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?

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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

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