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Suppose the expected one-month rates of return are 3% p.a 4.5% and 7% pa

Suppose the expected one-month rates of return are 3% p.a., 4.5% p.a. and 7% p.a. for the month ending in one, two and three months’ time respectively. Further, it is found that the liquidity premium for the second and third month is 1.75% and 2.40% respectively. According to the liquidity premium theory, what is the three-month yield?

Jan 31 2020 View more View Less

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