Pure expectations and liquidity premium theories

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Reference no: EM131449366

One-year interest rate over the next five years are 4%, 4.5%, 6%, 8%, and 9% respectively. Liquidity premiums for one- to five-year bonds are estimated to be 0%, 0.5%, 1.5%, 2.5%, and 3% respectively. Plot and identify each point under both the Pure Expectations and Liquidity Premium theories. Compare and contrast the theories.

Reference no: EM131449366

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