Questions
Quiz:Quiz 1
Multiple fill-in-the-blank
Part 1The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.[table] Year | One-Year Bond Rate | Multiyear Bond Rate 1 | 2.002.00% | 2.002.00% 2 | 3.003.00% | 4.004.00% 3 | 4.004.00% | 5.005.00% 4 | 6.006.00% | 7.007.00% 5 | 7.007.00% | 8.008.00% [/table]Part 2The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.)[table] l Subscript 11 | equals= | enter your response here % l Subscript 21 | equals= | enter your response here % l Subscript 31 | equals= | enter your response here % l Subscript 41 | equals= | enter your response here % l Subscript 51 | equals= | enter your response here % [/table]
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Step-by-Step Analysis
First, I restate the values from the table to ensure we’re using the same data: for each n-year bond, the multiyear bond rate is given, and the corresponding one-year rates (the expected short rates) for each year are also given. The data appear to be:
- Year 1: One-Year Bond Rate = 2.00%, Multiyear Bond Rate for 1 year = 2.00%
- Year 2: One-Year Bond Rate = 3.00%, Multiyear Bond Rate for 2 years = 4.00%
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Part 1The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.[table] Year | One-Year Bond Rate | Multiyear Bond Rate 1 | 2.002.00% | 2.002.00% 2 | 3.003.00% | 5.005.00% 3 | 4.004.00% | 6.006.00% 4 | 5.005.00% | 9.009.00% 5 | 8.008.00% | 12.0012.00% [/table]Part 2The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.)[table] l Subscript 11 | equals= | enter your response here % l Subscript 21 | equals= | enter your response here % l Subscript 31 | equals= | enter your response here % l Subscript 41 | equals= | enter your response here % l Subscript 51 | equals= | enter your response here % [/table]
Part 1The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.[table] Year | One-Year Bond Rate | Multiyear Bond Rate 1 | 2.002.00% | 2.002.00% 2 | 3.003.00% | 3.003.00% 3 | 4.004.00% | 4.004.00% 4 | 7.007.00% | 7.007.00% 5 | 8.008.00% | 10.0010.00% [/table]Part 2The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.)[table] l Subscript 11 | equals= | enter your response here % l Subscript 21 | equals= | enter your response here % l Subscript 31 | equals= | enter your response here % l Subscript 41 | equals= | enter your response here % l Subscript 51 | equals= | enter your response here % [/table]
Part 1The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.[table] Year | One-Year Bond Rate | Multiyear Bond Rate 1 | 2.002.00% | 2.002.00% 2 | 3.003.00% | 5.005.00% 3 | 5.005.00% | 7.007.00% 4 | 6.006.00% | 10.0010.00% 5 | 8.008.00% | 13.0013.00% [/table]Part 2The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.)[table] l Subscript 11 | equals= | enter your response here % l Subscript 21 | equals= | enter your response here % l Subscript 31 | equals= | enter your response here % l Subscript 41 | equals= | enter your response here % l Subscript 51 | equals= | enter your response here % [/table]
Which premium compensates investors for the difficulty of trading a bond quickly without affecting its price?
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