Determinants of Interest Rates

Using the following DATA:

R*= 4.25%

I₁ = 2%

I₂ = 4%

I₃ = 5%

I₄₌ 6.5%

MRP = .40% ( t - 1) (NOTE: This is a PERCENTAGE, not a DECIMAL MRP!) t = number of years to maturity

DRP = 7.2%

LP = 2.8%

CALCULATE:

4 year TREASURY BOND RATE

6 year CORPORATE BOND RATE