Question
Please use the the following information for a and b: The current four-year interest rate is 6.05% The current one-year interest rate is 3.0% The
Please use the the following information for a and b: The current four-year interest rate is 6.05% The current one-year interest rate is 3.0% The expected one-year rate for one year from now is 5.0% The expected one-year rate for two years from now is 6.5%
a. Assuming the Expections Hypothesis is correct, what is the expected one-year rate for three years from now?
b. Assuming the Liquidity Premium Theory is correct, and, if the expected one year rate is 4.5% three years from now, what is the Liquidity Premium?
Please using based on the following formula
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