Suppose that your forecasted interest rates on one- year T-bill issued by Bangladesh Bank are 9.25%, 10.15%, 11.50%, 12.25%, 13.10% and 8,20% in year 1,2,3,4,5 and 6 respectively. Additionally, you will receive a liquidity premium of 0.25% each year for holding longer term bond . Would you be indifferent between purchasing these T-bills each year for the next 5 years and buying a 5-year Sanchayapatra that yields 13.11% interest rate after five years? Briefly illustrate your answer using the relevant theory of term structure.

Suppose that your forecasted interest rates on one- year T-bill issued by Bangladesh Bank are 9.25%, 10.15%, 11.50%, 12.25%, 13.10% and 8,20% in year 1,2,3,4,5 and 6 respectively. Additionally, you will receive a liquidity premium of 0.25% each year for holding longer term bond . Would you be indifferent between purchasing these T-bills each year for the next 5 years and buying a 5-year Sanchayapatra that yields 13.11% interest rate after five years? Briefly illustrate your answer using the relevant theory of term structure.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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