Question
Suppose that i t =6% (n=1), and that future short-term interest rates (n=1) for the next 3 years (starting next year) are expected to be:
Suppose that it =6% (n=1), and that future short-term interest rates (n=1) for the next 3 years (starting next year) are expected to be: 4%, 2%, 2%. Suppose that the liquidity premium is zero for all n. Calculate in,t for n=2, 3, and 4. SHOW ALL WORK. Plot the yield curve.
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International Macroeconomics
Authors: Robert C. Feenstra, Alan M. Taylor
Fourth Edition
1319061729, 978-1319061722
