he Wall Street Journal reports that the rate on three-year Treasury securities is 2.99% and the rate on four-year Treasury securities is 3.34%. The liquidity premium in four years, L4, is 0.3%. According to the liquidity premium theory, what is the one-year interest rate expected in year four, E(4ri)? 0.04% 10.43% 1.4% 0.75% None of the above.

he Wall Street Journal reports that the rate on three-year Treasury securities is 2.99% and the rate on four-year Treasury securities is 3.34%. The liquidity premium in four years, L4, is 0.3%. According to the liquidity premium theory, what is the one-year interest rate expected in year four, E(4ri)? 0.04% 10.43% 1.4% 0.75% None of the above.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 19P

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Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%
The Wall Street Journal reports that the rate on 5-year Treasury securities is 5.35 percent and the rate on 6-year Treasury securities is 5.60 percent. The 1-year interest rate expected in five years is, E(6/1), is 6.20 percent. According to the liquidity premium hypotheses, what is the liquidity premium on the 6-year Treasury security, L6? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
The Wall Street Journal reports that the rate on three-year Treasury securities as 1.20 percent and rate on five-year Treasury securities is 2.15 percent. According to the unbiased expectations theory, what does the market expect the two-year Treasury rate to be three years from today, E (3r2)?
The Wall Street Journal reports that the rate on a four-year Treasury securities is 1.6 percent and the rate on a five-year Treasury securities is 2.15 percent. According to the unbiased expectations theory, what does the market expect the one-year Treasury rate to be four years from today, E(5r1)?
One-year Treasury bills currently earn 3.60 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.80 percent. The liquidity premium on 2 - year securities is 0.05 percent. If the liquidity premium theory is correct, what should the current rate be on 2 - year Treasury securities? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).
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