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Based on economists' forecast and analysis, one-year Treasury Bill rates and liquidity premiums for the next four years are expected to be as follows: 1R1

Based on economists' forecast and analysis, one-year Treasury Bill rates and liquidity premiums for the next four years are expected to be as follows: 1R1 =2.50% E[2r1 ] =2.80%L2 =0.10% E[3r1 ] =3.20%L3 =0.20% E[4r1 ] =3.50%L4 =0.50% Using the liquidity premium hypothesis determine the spot rates for each maturity and plot the current yield curve. Make sure you label the axes on the graph and identify the four annual rates on the curve.

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