Quick Finance Question

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The Wall Street Journal reports the rate on two-year Treasury securities is 4.15% and the rate on three-year Treasury securities is 5.27%.  The one-year interest rate expected in two years, E(3r1), is 7.11%.  According to the liquidity premium theory, what is the liquidity premium on a three-year Treasury, L3?

 

4.36%

4.90%

0.44%

0.49%

None of the above

 

*Please show me the work and how you got to the solution of the problem, thanks!

    • 11 years ago
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    mgarg2601
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