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Consider the following: today's interest rate for a 12-year bond is 7%; today's interest rate for a 4-year bond is 4%; the interest rate for
Consider the following: today's interest rate for a 12-year bond is 7%; today's interest rate for a 4-year bond is 4%; the interest rate for a 4-year bond, expected in 4 years is 5%. Find the interest rate for a 4-year bond expected in 8 years. The interest rate on the 12-year bond carries a .5% liquidity premium. Use the geometric or compound average approach. Make sure to express your answers as a percentage.
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