pter 2 Help Save & Exit Subm Saved Check my work 24 The Wall Street Journal repo

Question

pter 2 Help Save & Exit Subm Saved Check my work 24 The Wall Street Journal reports that the rate on three-year Treasury securities is 1.3 percent and the rate on four-year Treasury securities is 151 percent. The one-year interest rate expected in three years, g(4 , is 199 percent. According to the liquidity premium hypotheses, what is the liquidity premium on the four-year Treasury security, 4? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g. 32.16) points 0132:21

Explanation / Answer

1 + 1R4= {(1 + 1R3)x (1 + E(4r1) + L4)}^1/4 1+ 1.51% = {(1.013)^3 x(1 + 0.0199 + L4)}^1/4 1.0151 ^4 = {(1.013)^3 x(1 + 0.0199 + L4)} 1.0151^4/1.013^3 + 1.0199 = L4 1.0618/1.040 = (1 +.0199 + L4) 1.0214 - 1.0199 = L4 Liquidity Premium L4 = 0.15%

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.