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Chapter 02 Determinants of Interest Rates

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Question;58. The one-year spot rate is currently 4%, the;one-year spot rate one year from now will be 3%, and the one-year spot rate two;years from now will be 6%. Under the unbiased expectations theory, what must;today's three-year spot rate be? Suppose the three-year spot rate is actually;3.75%, how could you take advantage of this? Explain.;59. Explain the logic of the liquidity premium theory;of the term structure.;60. Explain the market segmentation theory of the term;structure.

 

Paper#55108 | Written in 18-Jul-2015

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