Problemone year spot rate is 6 2nd year forward rate is 75, Ask an Expert

Accounting

Problem:

One year spot rate is 6%, 2nd year forward rate is 7.5% and 3rd year forward rate is 12.3%. Assume liquidity premium for the second year is 0.5% and three year fixed rate is 9%.

Required:

Question: What is the liquidity premium for the third year?.

Note: Provide support for your rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170295

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