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Volgvan
3 years ago
14

According to the liquidity premium theory of the term structure of interest rates, if the one-year bond rate is expected to be 4

%, 5%, and 6% over each of the next three years, what is the interest rate on a three-year bond if the liquidity premium on a three-year bond is 0.5%
Business
1 answer:
KatRina [158]3 years ago
4 0

Answer:

Interest rate on the a three year bond =5.5%

Explanation:

one-year bond rate expected = 4%, 5%, 6% for the next three years

liquidity premium on a three year bond = 0.5%

number of years = 3

The interest rate on the a three year bond can be calculated as

= liquidity premium + ( summation of bond rates for the next three years/number of years )

= 0.5 + ( (4+5+6)/3)

= 0.5 + ( 15/3)

= 0.5 + 5  = 5.5%

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Answer:

a. increase price in the short run but not in the long run.

Explanation:

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3 years ago
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3 years ago
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Hope this helps.
7 0
3 years ago
Oilers, Inc. refines and markets its energy products in different nations around the world. In addition, Oilers' stockholders an
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I think it’s D or C but I’m not sure
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3 years ago
Eichholtz Company uses 10,000 units of a part in its production process. The costs to make a part are: direct materials, $12; di
slava [35]

Answer:

c) $40,000 to buy the part

Explanation:

For computing the better off first we have to compute the per unit cost which is shown below:

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3 years ago
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