QUESTION 6. The expected yield on 1-year bonds over the next 5 years is 2.0%, 2.1%, 2.6%, 3.0%, and 3.8%. The current liquidity premium is 0.25% 1. Using the Expectations Theory of term structure, calculate the yield on a 5-year bond today. 2. Using the Liquidity Premium Theory, calculate the yield on a 5-year bond today.

Survey Of Economics
10th Edition
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter20: Monetary Policy
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QUESTION 6. The expected yield on 1-year bonds over the next 5 years is 2.0%, 2.1%, 2.6%, 3.0%, and
3.8%. The current liquidity premium is 0.25%
1. Using the Expectations Theory of term structure, calculate the yield on a 5-year
bond today.
2. Using the Liquidity Premium Theory, calculate the yield on a 5-year bond today.
Transcribed Image Text:QUESTION 6. The expected yield on 1-year bonds over the next 5 years is 2.0%, 2.1%, 2.6%, 3.0%, and 3.8%. The current liquidity premium is 0.25% 1. Using the Expectations Theory of term structure, calculate the yield on a 5-year bond today. 2. Using the Liquidity Premium Theory, calculate the yield on a 5-year bond today.
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