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" ' ' ,7- W 7 '7- '7"' \"'1 Question 1 (13 marks) Answer all parts of the following question. Show your work using the relationships used in class. Yie1d(DD/MM/Y YYY) The following are Canadian government bond yields. Yield 10/05/19 Yield 10/05/20 Yield 10/06/20 12-Month 0.1 0.09 0.10 2-Year 0.31 0.56 0.60 3-Year 0.67 1.13 1.20 a) (2 marks) Under the Expectations Theory, calculate the expected (l-year) interest rates implied by the 10/05/20 yield curve for next year and the year after that; i.e. nd 5021 and 153022. Liquidity Premium Incorporated uses the Liquidity Premium Theory. On 10/05/20 they forecasts that (l-year) interest rates are going to be higher over the next two years at .19%; i.e. -e _ -e _ o 12021 '12022 019A)- 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