Question
Liquidity Premium Incorporated uses the Liquidity Premium Theory. On 10/05/20 they forecasts that (1-year) interest rates are going to be higher over the next two
Liquidity Premium Incorporated uses the Liquidity Premium Theory. On 10/05/20 they forecasts that (1-year) interest rates are going to be higher over the next two years at .19%; i.e. = = 0.19%. 2021 2022 b) (2 marks) What risk premiums are they using? (c) (2 mark) Using the liquidity premiums you have calculated in part (b), update the nominal interest rate forecast for 2022 using the data from the next day (10/06/20). (d) (2 marks) Nowadays Germany and France in Europe are issuing 10-year bonds of negative yields. Why investors still buying them? Give two reasons.
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