Assume that as of today, the annualized interest rate for a twelve-year bond is 8 percent. Today’s annualized interest rate for a five-year bond is 6 percent. The annualized interest rate for a four-year bond expected in five years is 5 percent. Use only this information to estimate the annualized interest rate for a three-year bond expected in nine years. The interest rate for a twelve-year bond has a .10% liquidity premium. Use the geometric average method.
Assume that as of today, the annualized interest rate for a twelve-year bond is 8 percent. Today’s annualized interest rate for a five-year bond is 6 percent. The annualized interest rate for a four-year bond expected in five years is 5 percent. Use only this information to estimate the annualized interest rate for a three-year bond expected in nine years. The interest rate for a twelve-year bond has a .10% liquidity premium. Use the geometric average method.
Chapter5: The Cost Of Money (interest Rates)
Section: Chapter Questions
Problem 11PROB
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4. Assume that as of today, the annualized interest rate for a twelve-year bond is 8
percent. Today’s annualized interest rate for a five-year bond is 6 percent. The
annualized interest rate for a four-year bond expected in five years is 5 percent. Use
only this information to estimate the annualized interest rate for a three-year bond
expected in nine years. The interest rate for a twelve-year bond has a .10% liquidity
premium. Use the geometric average method. Make sure to show your work.
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