Liquidity Premium Hypothesis Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 6.05% E(r2) = 7.15% L2 = .85% E(r3) = 7.35% L3 = .88% E(r4) = 7.55% L4 = .90% Using the liquidity premium hypothesis, what is the current rate on a four-year Treasury security?

Liquidity Premium Hypothesis Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 6.05% E(r2) = 7.15% L2 = .85% E(r3) = 7.35% L3 = .88% E(r4) = 7.55% L4 = .90% Using the liquidity premium hypothesis, what is the current rate on a four-year Treasury security?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 6P

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Determinant of Interest Rates The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during each of the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities?
Based on economists’ forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 1R1 = 5.8%, E(2r1)=6.4%, L2=0.1%, E(3r1)= 6.9%, L3=0.2%, E(4r1)=7.5%, L4=0.3% Using the liquidity premium hypothesis, calculate the current rate for the three-year Treasury security.
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 %
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 = 0.90 % E(2r1) = 2.05 % L2 = 0.09 % E(3r1) = 2.15 % L3 = 0.12 % E(4r1) = 2.45 % L4 = 0.14 % Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
4 - Based on economistsAc€?c forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = .90% E(2r1) = 2.05% L2 = 0.09% E(3r1) = 2.15% L3 = 0.12% E(4r1) = 2.45% L4 = 0.14% Using the liquidity premium theory, plot the current yield curve. Make sure you label the axes on the graph and identify the four annual rates on the curve both on the axes and on the yield curve itself. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year Current (Long-term) Rates 1 % 2 % 3 % 4 % 6 - On March 11, 20XX, the existing or current (spot) 1-, 2-, 3-, and 4-year zero coupon Treasury security rates were as follows: 1R1 = 0.90%, 1R2 = 1.50%, 1R3 = 1.90%, 1R4 = 2.05% Using the unbiased…