The interest rate on a 5-year Treasury bond is 3%. Investors expect that the one-year interest rate will be 1% in the coming year, 2% in the year after that, and will average 4% per year over the next three years. What is the term premium? Explain your answer.
The interest rate on a 5-year Treasury bond is 3%. Investors expect that the one-year interest rate will be 1% in the coming year, 2% in the year after that, and will average 4% per year over the next three years. What is the term premium? Explain your answer.
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 4P
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The interest rate on a 5-year Treasury bond is 3%. Investors expect that the one-year interest rate will be 1% in the coming year, 2% in the year after that, and will average 4% per year over the next three years. What is the term premium? Explain your answer.
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