Question: Using the same information, what interest rate (in %s) would you expect a 6-year bond to have under the liquidity premium theory? From Prior: You
Using the same information, what interest rate (in \%s) would you expect a 6-year bond to have under the liquidity premium theory? From Prior: You observe that there is a one-year Treasury bond with a yield of 3.0%. You also assume that rates will be going up and that the one-year bond will go up by 1.0% each year. For example, you expect the one-year bond in year 2 will be 4.0% and 5.0% in year 3 . With that information, what do you expect the 3-year interest rate to be (in \%s) if you require a liquidity premium of 0.15% for each year beyond year one
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