Assume that the current one-year spot rate and expected one-year T-bill rates over the following three...

 

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Assume that the current one-year spot rate and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 6.60%, E(201) = 7.55 %, E(3r1) = 8.15%, E(41) = 8.40%. Assuming that liquidity premium for years 2, 3 and 4 are as follows: L2 = 0.20%, L3= 0.30%, L4 = 0.40%. Using the liquidity premium theory (LPT), calculate the current long-term rates for one- two-, three-, and four-year-maturity Treasury securities and plot the current yield curve. Show the workings. Assume that the current one-year spot rate and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 6.60%, E(201) = 7.55 %, E(3r1) = 8.15%, E(41) = 8.40%. Assuming that liquidity premium for years 2, 3 and 4 are as follows: L2 = 0.20%, L3= 0.30%, L4 = 0.40%. Using the liquidity premium theory (LPT), calculate the current long-term rates for one- two-, three-, and four-year-maturity Treasury securities and plot the current yield curve. Show the workings.

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To calculate the current longterm rates for one two three and fouryearmaturity Treasury securities u... View the full answer