Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Concept explainers

Treasury Market
On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to t…
Question

Bhupatbhai 

Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R₁ R1 0.85% = E(2r1) = 2.00% E(3r1) = 2.10% E(41) = 2.40% 42 = 0.08% 43 = 0.10% L4 44 = 0.12% Using the liquidity premium theory, determine the current (long-term) rates. Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Years 1 2 3 4 Current (Long-term) Rates % % % %
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Transcribed Image Text:Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R₁ R1 0.85% = E(2r1) = 2.00% E(3r1) = 2.10% E(41) = 2.40% 42 = 0.08% 43 = 0.10% L4 44 = 0.12% Using the liquidity premium theory, determine the current (long-term) rates. Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Years 1 2 3 4 Current (Long-term) Rates % % % %
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