Based on economists’ forecasts and analysis, one-year Treasury bill rates and liquidity premiums

Based on economists’ forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows:

1R= 0.48%
E(2r1) = 0.83% L2 = 0.04%
E(3r1) = 0.93% L3 = 0.15%
E(4r1) = 1.23% L4 = 0.17%

Calculate the yield to maturity for four years. (Round your percentage answers to 2 decimal places. (e.g., 32.16))

 

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Answer

=-.48

= ((1+0.48%)*(1+0.83%+0.04%))^(1/2) -1= 0.67%

==((1+0.48%)*(1+0.83%+0.04%)*(1+0.93%+0.15%))^(1/3) -1= 0.87%

= ((1+0.48%)*(1+0.83%+0.04%)*(1+0.93%+0.15%)*(1+1.23%+0.17%))^(1/4) -1 =0.96%