Determine market interest rate, Applied Statistics

The interest rate on the three year loan is 0.087. Whereas the interest rate on the two year loan is 0.085 as given in A. Suppose that the liquidity premium at t=1 is 0.002 and that at t=2 is 0.0025.

Calculate the one year interest rate expected (forward rate) at t=2.

The interest rate on the four year loan is 0.09. Whereas the interest rate on the three year loan is 0.087 as in B. Suppose that the liquidity premium at t=3 is 0.0028 and that at t=2 is 0.0025 as in B.

Calculate the one year interest rate expected(forward rate) at t=3

The interest rate on the five year loan is 0.092. Whereas the interest rate on the four year loan is 0.09 as in C. Suppose that the liquidity premium at t=4 is 0.003 and that at t=3 is 0.0028 as in C.

Calculate the one year interest rate expected(forward rate) at t=4 rate Liquidity premium
-------------------------------------------------------------------------------*
One year interest rate t=0 0.08 0

on the 2 year loan 0.085 0.002

on the 3 year loan 0.087 0.0025

on the 4 year loan 0.090 0.0028

on the 5 year loan 0.091 0.0030

A A zero coupon bond matures in 5 years. The market interest for the bond is 10%. What will be the price of the zero?

B. Suppose that the price of this zero is $700. What is the market interest rate implied here?

Posted Date: 3/2/2013 7:35:07 AM | Location : United States







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