You are told that the current 90-day bank bill rate is 3.2% p.a., 180-day bank bill rate is 2.9% p.a. and 270-day bank bill rate is 2.7% p.a. Required:

(a) Calculate exactly the 90-day forward 90-day rate ;

(b) Calculate approximately the 180-day forward 90-day rate ;

(c) If you were to plot a yield curve using appropriate rates from this question, would the yield curve be consistent with the liquidity premium theory? Explain.

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Step 11 Question 1a 90r180 32 292 90r180 305 Question 1b The 180day forward 90day rate 180r270 can b... View the full answer