A one- year bond currently pays 5% interest. It's expected that it will pay 4.5% next...
A one- year bond currently pays 5% interest. It's expected that it will pay 4.5% next year and 4% the following year. The twominus year term premium is 0.2% while the three- year term premium is 0.35%. What is the interest rate on a twominus year bond according to the liquidity premium theory? A. 4.975% B. 4.75% C. 4.5% D. 4.95%
Homework Answers
Answer
According to liquidity premium theory
current interest=5%
next year interest= 4.5%
next following year= 4%
((5+4.5)/2)+0.2= 4.95%
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A one- year bond currently pays 5% interest. It's expected
that it will pay 4.5% next...
The Wall Street Journal reports that the rate on three-year Treasury securities is 4.75 percent and the rate on four-year Treasury securities is 5.00 percent. The one-year interest rate expected in three years is E(4r1), 5.25 percent. According to the liq
The Wall Street Journal reports that the rate on three-year Treasury securities is 4.75 percent and the rate on four-year Treasury securities is 5.00 percent. The one-year interest rate expected in three years is E(4r1), 5.25 percent. According to the liquidity premium theory, what is the liquidity premium on the four-year Treasury security, L4?
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5a. Assume that the one-year interest rate is 1%, the two-year interest rate is 2% and...
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Suppose that the interest rate on one-year bonds is currently 4.5 percent and is expected to...
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Suppose interest rates on 1 year bonds are expected to be 0.6%, 0.7%,0.7% 0.8% and 0.8% over the next five years. Suppose the liquidity premium on five year bonds is 0.2% a. Using the expectations theory, what would be the interest rate on a five year bond? b. Using the liquidity premium theory, what would be the interest rate on a five year bond? Print Layout view Sec 1 Pages: 3 of 3
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