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3. Consider the market for 1 and 10 year $1.000 face value U.S. government discount bonds. (a) Imagine that interest rates are expected to remain

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3. Consider the market for 1 and 10 year $1.000 face value U.S. government discount bonds. (a) Imagine that interest rates are expected to remain constant for the next 10 years. If the one year bond sells for $952.38 and the 10 year bond sells for $463.19. what is the liquidity premium (T)? (b) What is the liquidity premium if the interest rate is expected to remain constant for 5 years and then increase to 7% for years 6 through 10

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