Liquidity Premium Hypothesis One-year Treasury bills currently earn 5.85 percent. You expect that one year from now, one-year Treasury bill rates will increase to 6.10 percent. The liquidity premium on two-year securities is .110 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?

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A: Calculate the current rate on 3-year treasury securities as follows:

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A:

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Q: what was your total return for the past year?

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A: Excel Spreadsheet:

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