2.8 Suppose that the interest rate on a one-year Treasury bill is currently 1% and that investors expect that the interest rates on one-year Treasury bills over the next three years will be 2%, 3%, and 2%. Use the expectations theory to calculate the current interest rates on two-year, three-year, and four-year Treasury notes.
[Related to Solved Problem 5.2B] Use the data on Treasury securities in the table to answer the following question.
Assuming that the liquidity premium theory is correct, what did investors on this day expect the interest rate to be on the one-year Treasury bill two years from now if the term premium on a two-year Treasury note was 0.10% and the term premium on a three-year Treasury note was 0.25%? Assume that all three securities are discount bonds that pay no coupons
