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Hi tutor,I request you to help me in this question. a) Suppose that the current rates of T-bills with different maturities are as below: 1R1

Hi tutor,I request you to help me in this question.

a) Suppose that the current rates of T-bills with different maturities are as below:

1R1 = 4.5%, 1R2 = 5.5%, 1R3 = 6.0%, 1R4 = 6.2%

Using the unbiased expectations theory, calculate

(i) the 1-year forward rate in year 3 and

(ii) the 3-year forward rate in year 2.

b) Suppose we observe the following rates: 1R1 = 12%, 1R2 = 15% and E(2r1) = 16.8%. If the liquidity premium theory of the term structure of interest rates holds, calculate liquidity premium for year 2.

c) Suppose Hong Kong government increases the employees' mandatory MPF contributions from 5% of their incomes to 10%. Meanwhile, she announces a cash payout of $10,000 to Hong Kong permanent residents aged 18 or above. Explain how these policies affect the interest rate of loanable fund market.

Looking forward to get help.Thank you.

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