What does the market expect the one-year treasury rate

Reference no: EM133264546

1. The Wall Street Journal reports that the rate on three-year Treasury securities is 7.15 percent and the rate on four-year Treasury securities is 8.40 percent. According to the unbiased expectations (UET) hypothesis, what does the market expect the one-year Treasury rate to be in year 4, E(4r1)?

2. EDF Bank has a very simple balance sheet. Assets consist of a two-year, $1 million loan that pays an interest rate of LIBOR plus 4 percent annually. The loan is funded with a two-year deposit on which the bank pays LIBOR plus 3.25 percent interest annually. LIBOR currently is 4 percent, and both the loan and the deposit principal will be paid at maturity. What isthe maturity gap on this balance sheet?

3. The Wall Street Journal reports that the rate on three-year Treasury securities is 6.85 percent and the rate on four-year Treasury securities is 7.15 percent. The one-year interest rate expected in year four is E(4r1), 7.00 percent. According to the liquidity premium (LPT) hypothesis, what is the liquidity premium on the four-year Treasury security, L4?

Reference no: EM133264546

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