Question
The 1-year rate is currently 3%, and the expected 1-year rate a year from now is 3%. If the liquidity preference theory holds and the
The 1-year rate is currently 3%, and the expected 1-year rate a year from now is 3%. If the liquidity preference theory holds and the liquidity premium for the 2-year rate is 0.3%, what should the 2-year rate be? (Assume that the liquidity premium for the 1-year rate is 0.0%) Please express your answer in percent rounded to the nearest basis point.
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Introduction To Derivatives And Risk Management
Authors: Robert Brooks, Don M Chance
9th Edition
1133190197, 978-1133190196
