Use the data in the following table on Treasury securities of different maturities to answer the question: Date 1 year 2 year 3 year 03/05/2010 0.38%...

1.43%

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Source: U.S. Department of the T

reasury.

Assume that the liquidity premium theory is correct.

Also assume that on March 5, 2010 the term premium on a two

-

year Treasury note

was 0.02% and the term premium on a three

-

year Treasury note was 0.06%.

a.

Calculate the interest rate investors expected on the one

-

year Treasury bill

one year

from March 05, 2010

b.

Using the result from question (a), calculate the interest rate investors

expected on the one

-

year Treasury bill

two years

from March 05, 2010