Calculate a table of interest rates for 5 years based on the following information:

Anonymous
timer Asked: Feb 20th, 2015

Question Description

I need an explanation for this Business question to help me study.

·  The pure interest rate is 2%

·  Inflation expectations for year 1 = 3%, year 2 =4%, years 3-5 =5%

·  The default risk is .1% for year one and increases by .1% over each year

·  Liquidity premium is 0 for year 1 and increases by .2% each year

·  Maturity risk premium is 0 for years 1 and 2 and .3% for years 3-5


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