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# Suppose that i t =6% (n=1), and that future short term interest rates (n=1) for the next 3 years (starting next year) are expected to

- Suppose that i
_{t}=6% (n=1), and that future short term interest rates (n=1) for the next 3 years (starting next year) are expected to be: 4%, 2%, 2%. Suppose that the liquidity premium is zero for all n. Calculate i_{n,t}for n=2, 3, and 4.**SHOW ALL WORK.**Plot the yield curve. - Suppose that i
_{t}=5% (n=1), and that future short term interest rates for the next 4 years are not expected to change.The liquidity premium l_{n,t}for n=2, 3, and 4 is 0.25%, 0.35% and 0.5% respectively. Calculate i_{n,t}for n=2, 3, and 4.**SHOW ALL WORK.**Plot the yield curve.

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