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The Wall Street Journal reports that the rate on three-year Treasury securities is 1.22 percent and...

The Wall Street Journal reports that the rate on three-year Treasury securities is 1.22 percent and the rate on four-year Treasury securities is 1.4 percent. The one-year interest rate expected in three years, E(4r1), is 1.8 percent. According to the liquidity premium hypotheses, what is the liquidity premium on the four-year Treasury security, L4?

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Answer #1

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Home nert Page Layout Formulas Data Review View dd-Ins Cut E AutoSum Wrap Text General ta copy. в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard DZ143 DV Font Alignment Number Styles Cells Edting DW DX DY DZ EA EB EC ED ΕΕ EF EG EH El El 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 LIQUIDITY PREMIUM 1R4-1.4%, 1R3-1.22% 64R1)- 1.80% 11R4 [((1+1R3)A3)*(1+E(4R1) + L4)]A1/4 1+0.014 1+.0122)A3) (1+0.018 L4)]1/4 .05718701 1.01441+0.0122)A3)*(1+0.018+L4)] 1.0370483 1.057187 (1.0370483)*(1.018+L4) 1.0194 192 1.0194 192 = 1.018 + 14 L4-0.00142 ANSWER L4-0.142% YIELD SPOT Sheet2 AFN BANKING NOTE BIDDING, UNDERWRITING EUAC AW PM LIFE LP I MRP INFLATION YIELD WARRANT fund bond CLEAN INVOICE PRICE 014 - 02:46 31-01-2019

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