Don't know what you mean by "Liquidity premium theorem"
6-5 Unbiased Expectations Theory Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: R 6%, Egri) = 7%, E(3r) = 7.5%, E471) 7.85% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-. three-, and four-year-maturity Treasury securities. Plot the resulting yield curve. (LG6-70) 6-2 Determinants of Interest Rates for Individual Securities You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that one-year T-bills are currently earning 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.75% Default risk premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% 2. What is the inflation premium? (LG6-6) b. What is the fair interest rate on Moore Corporation 30-year bonds? (LG6-6 m) 6-11 Liquidity Premium Theory Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: RI LL = = 0.65% El2r1) 1.75% E(371) 1.85% Ear) = 2.15% = 0.05% 0.10% 0.12% Using the liquidity premium theory, plot the current yield curve. Make sure you label the axes on the graph and identify the four annual rates on the curve both on the axes and on the yield curve itself. (LG6-79) 6-27 Forecasting Interest Rates Assume the current interest rate on a one-year Treasury bond (R) is 4.50 percent, the current rate on a two-year Treasury bond (R2) is 5.25 percent, and the current rate on a three-year Treasury bond (R3) is 6.50 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year forward rate expected on Treasury bills during year 3, fi? (LG6-8 ) 6-5 Unbiased Expectations Theory Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: R 6%, Egri) = 7%, E(3r) = 7.5%, E471) 7.85% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-. three-, and four-year-maturity Treasury securities. Plot the resulting yield curve. (LG6-70) 6-2 Determinants of Interest Rates for Individual Securities You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that one-year T-bills are currently earning 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.75% Default risk premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% 2. What is the inflation premium? (LG6-6) b. What is the fair interest rate on Moore Corporation 30-year bonds? (LG6-6 m) 6-11 Liquidity Premium Theory Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: RI LL = = 0.65% El2r1) 1.75% E(371) 1.85% Ear) = 2.15% = 0.05% 0.10% 0.12% Using the liquidity premium theory, plot the current yield curve. Make sure you label the axes on the graph and identify the four annual rates on the curve both on the axes and on the yield curve itself. (LG6-79) 6-27 Forecasting Interest Rates Assume the current interest rate on a one-year Treasury bond (R) is 4.50 percent, the current rate on a two-year Treasury bond (R2) is 5.25 percent, and the current rate on a three-year Treasury bond (R3) is 6.50 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year forward rate expected on Treasury bills during year 3, fi? (LG6-8 )
