Suppose that the current one-year rate (one-year spot rate) and expected one-year government bondsover years 2, 3 and 4 are as follows:1R1 = 4.80%, E(201) = 5.45%, E(3r1) = 5.95%, E(41) = 6.10%Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for thefour-year-maturity government bond? <A. 5.57%B. 5.62%C. 5.83%D. 6.10%

Given: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10%

Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(201) = 5.45%, E(301) = 5.95%, E(41) = 6.10% < Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? < A. 5.57% + B. 5.62% → C. 5.83% + D. 6.10% <

Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(201) = 5.45%, E(301) = 5.95%, E(41) = 6.10% < Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? < A. 5.57% + B. 5.62% → C. 5.83% + D. 6.10% <

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter5: The Cost Of Money (interest Rates)

Section: Chapter Questions

Problem 7PROB

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Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%
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