Hi,

Kindly,help me in following question.

a)Suppose that the current rates of T-bills with different maturities are as below:

₁R₁ = 4.5%, ₁R₂ = 5.5%, ₁R₃ = 6.0%, ₁R₄ = 6.2%

Using the unbiased expectations theory, calculate (i) the 1-year forward rate in year 3 and

(ii) the 3-year forward rate in year 2

Suppose we observe the following rates: ₁R₁ = 12%, ₁R₂ = 15% and E(₂r₁) = 16.8%. If the liquidity premium theory of the term structure of interest rates holds, calculate liquidity premium for year 2.

b)Suppose Hong Kong government increases the employees' mandatory MPF contributions from 5% of their incomes to 10%. Meanwhile, she announces a cash payout of $10,000 to Hong Kong permanent residents aged 18 or above. Explain how these policies affect the interest rate of loanable fund market.

Thank you.