What will be the interest rates on three-year bond

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Reference no: EM131844436

Short-term (one-year) interest rates over the next 6 years will be 0.5%, 0.6%, 0.7%, 0.76%, 0.80%, and 0.84%. Using the expectations theory, what will be the interest rates on three-, four-, and six-year bonds? What if the investor prefers holding short-term bonds. A liquidity premium of 10 basis points is required for each year of a bond’s maturity. What will be the interest rates on a 3-year bond, 4-year bond, and 6-year bond?

Reference no: EM131844436

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