Liquidity premium hypothesis One-year Treasury bills currently earn 6.30 percent. He expects that within a year, rates on one-year Treasury bills will rise to 6.55 percent. The liquidity premium for two-year securities is 0.155 percent. If the liquidity theory is correct,  calculate what should the current rate on the two-year Treasury be?

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According to the liquidity premium hypothesis the current rate on the twoyear Treasury bi... View the full answer