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Government economists have forecasted one-year T-bill rates for the following five years, as follows: Year 1-Year Rate (%) Year 1 4.25% Year 2 5.15% Year
Government economists have forecasted one-year T-bill rates for the following five years, as follows: Year 1-Year Rate (%) Year 1 4.25% Year 2 5.15% Year 3 5.50% Year 4 6.25% Year 5 7.10% You have a liquidity premium of 0.25% for the next two years and 0.50% thereafter. Would you be willing to purchase a four-year T-bond at a 5.75% interest rate? Please show calculations for best understanding.
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