Liquidity premium on the eight-year treasury security

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Liquidity Premium Theory

The Wall Street Journal reports that the rate on 7-year Treasury securities is 5.85 percent and the rate on 8-year Treasury securities is 6.10 percent. The 1-year risk-free rate expected in seven years is, E(8r1), is 6.70 percent. According to the liquidity premium hypotheses, what is the liquidity premium on the 8-year Treasury security, L8? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Liquidity premium ______________%

Reference no: EM131839995

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