Problem 2: Follow another (Yield) Curve Suppose that the yield curve for the next 3 years is given by (there are no liquidity premia): Maturity Spot Rate 12% 12% 8% 1. Calculate the forward rate for one year, one year from now f1,1- 2. Calculate the forward rate for one year, two years from now f1.2- 3. Calculate the forward rate for two years, one year from now f2,1- 4. According to the Expectations Theory, interest rates are expected to increase, decrease or remain stable next year?

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A:

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Q: Assume that the one-year rate (short-term) over the next 3 years are 2023: 4% 2024: 5% 2025: 6% (1)…

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A: R1 =4.1%R2 = 4.5%R3 = 5.2%R4= 6.0%

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Q: Please answer the correct calculation please ASAP    Don't answer by pen paper

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A: What is the 6 year yield (assume continuous compounding)e^(0.04*2)*e^(6 year yield*6)=e^(0.07*8)

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.