Discount Yield-treasury bill, liquidity premium hypothesis
5) You wish to invest funds for the next 180 days. You have the following choices:
a) buy 180 day t-bills at a discount yield of 6% and hold them until maturing
b) Buy 360 day t-bill at a discount yield of 6.25% and sell them in 180 days.
Which would you do?
Which would you do if you prefer the liquidity premium hypothesis?
https://brainmass.com/business/interest-rates/discount-yield-treasury-bill-liquidity-premium-hypothesis-130468
Solution Preview
Please see attached file.
5) You wish to invest funds for the next 180 days. You have the following choices:
a) buy 180 day t-bills at a discount yield of 6% and hold them until maturing
b) Buy 360 day t-bill at a discount yeild of 6.25% and sell them in 180 days.
Which would you do?
Which would you do if you prefer the liquidity premium hypothesis?
a) buy 180 day t-bills at a discount yield of ...
Solution Summary
The expert finds the investment (in treasury bill)with the higher yield.