Assume that the expectations theory holds, and that liquidity and maturity
January 14th, 2018
Assume that the expectations theory holds, and that liquidity and maturity risk premiums are zero. If the annual rate of interest on a 2 year Treasury bond is 10.5 percent and the rate on a 1 year Treasury bond is 12 percent, what rate of interest should you expect on a 1 year Treasury bond one year from now?