Question
Suppose we observe the following rates: 1 R 1 = 0.80%, 1 R 2 = 1.25%, and E ( 2 r 1 ) = 0.941%.
| Suppose we observe the following rates: 1R1 = 0.80%, 1R2 = 1.25%, and E(2r1) = 0.941%. If the liquidity premium theory of the term structure of risk-free rates holds, what is the liquidity premium for year 2, L2? (Do not round intermediate calculations. Round your final answer to 3 decimal places.) |
| Liquidity premium | % |
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ISE Financial Institutions Management A Risk Management Approach
Authors: Anthony Saunders Professor, Marcia Millon Cornett, Otgo Erhemjamts
10th International Edition
1260571475, 9781260571479
