One-year treasury bills currently earn 2.30 percent. you expect that one year from now, 1-year treasury bill rates will increase to 2.50 percent and that two years from now, 1-year treasury bill rates will increase to 3.00 percent. the liquidity premium on 2-year securities is 0.15 percent and on 3-year securities is 0.25 percent. if the liquidity premium theory is correct, what should the current rate be on 3-year treasury securities? (do not round intermediate calculations. round your answer to 2 decimal places.)

The current rate be on 3-year Treasury securities is 2.85%

Explanation:

current rate of interest = Average interest rate + liquidity premium

Average interest rate for 3 Year = (2.30% + 2.50% +3%)/3

                                                      = 2.6%

Liquidity premium for 3 year security = 0.25%

current rate on 3 year Treasury security = 2.6% + 0.25%

                                                                   = 2.85%

Therefore, The current rate be on 3-year Treasury securities is 2.85%

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