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The following treasury yield curve rates (%) are from the U.S. Department of the Treasury. According to the liquidity premium theory, what is the expected
The following treasury yield curve rates (%) are from the U.S. Department of the Treasury. According to the liquidity premium theory, what is the expected two-year rate three years from now? Assume that the liquidity premiums for various maturity bonds are as follows:
l1=0%; l2=0.05%; l3=0.09%; l5=0.10%; l7=0.12%; l10=0.13%; l20=0.15%; l30=0.16%;
1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
0.20 | 0.32 | 0.41 | 0.86 | 1.41 | 2.01 | 3.25 | 3.61 |
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