UNDER EXPECTATION THEORY OF INTEREST RATES. If this year a 1-year bond has a return of...
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UNDER EXPECTATION THEORY OF INTEREST RATES. If this year a 1-year bond has a return of 5%, and people believe next year a one-year bond will have return of 4%, and the year after people believe a 1- year bond will have a return of 3%. What should interest rates on a 3-year bond be today?
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If the 3-year bond rate is 7% what is the liquidity premium?
Homework Answers
interest rates on a 3-year bond be today = (5% + 4% + 3%) / 3 = 12%/3 = 4%
If the 3-year bond rate is 7%, the liquidity premium = 7%-4% = 3%
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UNDER EXPECTATION THEORY OF INTEREST RATES. If this year a
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