ear Treasury bill

Economics For Today
10th Edition
ISBN:9781337613040
Author:Tucker
Publisher:Tucker
Chapter26: Monetary Policy
Section: Chapter Questions
Problem 3SQP
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Based on economics forecast and analysis, one year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows 5.65%, 6.75% 6.85% 7.15% respectively and the liquidity premium from 2nd year to 4th year is 0.05%, 0.10%, 0.12%.

Using the liquidity premium theory, plot the current yield curve. Make sure you label the axes on the graph and identify the four annual rates on the curve both on the axes and on the yield curve itself.

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