Question

# Based on economists’ forecasts and analysis, one-year T-bill rates and liquidity premiums for the next four...

 Based on economists’ forecasts and analysis, one-year T-bill rates and liquidity premiums for the next four years are expected to be as follows:

 1R1 = .33% E(2r1) = .70% L2 = 0.06% E(3r1) = .80% L3 = 0.15% E(4r1) = 1.10% L4 = 0.16%

 Identify the four annual rates. (Round your answers to 2 decimal places. (e.g., 32.16))

 Annual Rates Year 1 % Year 2 % Year 3 % Year 4 %

#### Homework Answers

Answer #1
 1R1 = 0.33% 0.0033 E(2r1) = 0.70% L2 = 0.06% E(3r1) = 0.80% L3 = 0.15% E(4r1) = 1.10% L4 = 0.16% Year 1 (1+0.0033)^1-1 0.0033 0.33% Year 2 [(1 + .0033)(1 + .0070 + .0006)]^0.50 - 1 0.00545 0.545% Year 3 [(1 + .0033)(1 + .0070 + .0006)(1+0.0080+0.0015)]^1/3 - 1 0.00680 0.68% Year 4 [(1 + .0033)(1 + .0070 + .0006)(1 + .0080 + .0015)(1 + .0110 + .0016)] 1/4 - 1 0.032 3.20%
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