A one-year bond has an interest rate of 0.2% and is expected to rise to 0.5% next year and 1.1% in two years. The term premium for a two-year bond is 0.1% and for a three-year bond is 0.25%
What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?
A two-year bond will have an interest rate of (0.2 + 0.5)/2 + 0.1% = 0.45%. A three-year bond will have an interest rate of (0.2 + 0.5 + 1.1)./3 + 0.25% = 0.85%.
You might also like to view...
A program of protection that results in preserving jobs in certain industries
a. maintains full employment at lower cost than any other program or policy. b. lowers average pay in the protected industries. c. improves living standards for the average person in that country. d. often does so at a cost that is much higher than the average income of persons in those industries.
Which of the following producers likely faces the most significant barrier to entry in its industry due to government regulation?
a. toy manufacturer b. pharmaceutical firm c. glass manufacturer d. soap producer
The statement that the U.S. government should increase carbon taxes to reduce carbon emissions that cause global warming is? ___________.
A. a positive? statement, since most studies have found that global warming does exist and most economists do believe that carbon taxes are an effective way to control emissions. B. neither a positive nor a normative? statement, since it discusses the broad topic of global warming instead of a specific issue within the country. C. a normative? statement, since it is an incorrect statement. Most economists believe that carbon taxes should be lowered to control emissions. D. a normative? statement, since it describes what ought to be done and is therefore not possible to confirm with data.
The collapse in housing prices from 2006-2009 contributed to the 2008-2009 recession.
Answer the following statement true (T) or false (F)