Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to e as follows: R₁ = 0.55% E(251) = 1.70% E(31)- L2 = 0.08% = 1.80% E(451) 2.10% 43 = 0.12% L4 = 0.14% 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 entere s 12.34). Years Current (Long-term) Rates 1 %

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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 = 0.55%
R1
E(21) = 1.70%
=
42 = 0.08%
E(31) 1.80%
43 =
L4=
0.12%
0.14%
=
E(41) 2.10%
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).
Current (Long-term)
Rates
Years
1
%
2
%
3
%
4
5 %
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 = 0.55% R1 E(21) = 1.70% = 42 = 0.08% E(31) 1.80% 43 = L4= 0.12% 0.14% = E(41) 2.10% 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). Current (Long-term) Rates Years 1 % 2 % 3 % 4 5 %
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