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Based on economists’ forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows:  R1  =2.00%      E(2r1)=2.90% L2=0.06%  E(3r1)=3.30% L3=0.08%  E(4r1)=3.75% L4=0.13%          Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.)Based on economists’ forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1  =2.00%      E(2r1)=2.90% L2=0.06%  E(3r1)=3.30% L3=0.08%  E(4r1)=3.75% L4=0.13%          Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.)YearsCurrent (Long-term) Rates1 %2 %3 %4 %

Question

Based on economists’ forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows:
 

 R1   = 2.00 %          
 E(2r1) = 2.90 %  L2 = 0.06 %  
 E(3r1) = 3.30 %  L3 = 0.08 %  
 E(4r1) = 3.75 %  L4 = 0.13 %  
                 


Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Based on economists’ forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows:

 R1   = 2.00 %          
 E(2r1) = 2.90 %  L2 = 0.06 %  
 E(3r1) = 3.30 %  L3 = 0.08 %  
 E(4r1) = 3.75 %  L4 = 0.13 %  
                 


Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Years Current (Long-term) Rates
1   %
2   %
3   %
4   %
 

 

check_circleAnswer
Step 1

Calculation of Current Long-Term Rates:

The current long-term rates for Year 1 is 2.00%, for Year 2 is 2.48%, for Year 3 is 2.78% and for Year 4 is 3.05%.

Excel Spreadsheet:

...
B
C
2%
1R
2 Er2.90% |L2
3 E(gr1) 3.30% L3
4 E(ar 3.75% L4
5Year Current (Long-term) Rates
0.06%
0.08%
0.13%
1
2.00%
7
2
2.48%
2.78%
4
3.05%
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B C 2% 1R 2 Er2.90% |L2 3 E(gr1) 3.30% L3 4 E(ar 3.75% L4 5Year Current (Long-term) Rates 0.06% 0.08% 0.13% 1 2.00% 7 2 2.48% 2.78% 4 3.05%

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