Based on Economists' Forecasts and Analysis, One-Year Treasury Bill Rates

question 30

Multiple Choice

Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R₁ = 5.95%
E(r₂) = 6.25% L₂ = 0.05%
E(r₃) = 6.75% L₃ = 0.10%
E(r₄) = 7.15% L₄ = 0.12%
Using the liquidity premium hypothesis, what should be the current rate on four-year Treasury securities?

• A) 6.59%
• B) 6.75%
• C) 6.82%
• D) 7.13%