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Government economists have forecasted one-year T-bill rates for the following five years, as follows: Year 1-year rate (%) 1 .........4.25 2 .........5.15 3 .........5.50 4

Government economists have forecasted one-year T-bill rates for the following five years, as follows:


Year 1-year rate (%)

1 .........4.25

2 .........5.15

3 .........5.50

4 .........6.25

5 .........7.10

You have a liquidity premium of 0.25% for the next two years and 0.50% thereafter. Would you be willing to purchase a four-year T-bond at a 5.75% interest rate?

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