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The Yield on a One-Year Bond Is Currently 6% and the Expected

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The yield on a one-year bond is currently 6% and the expected yield on one-year bonds for the next three years is 4%, 2% and 1%. If the liquidity premium is 1%, what are the yields on a bond with two, three and four years to maturity?


Definitions:

Shareholder Wealth

The total value of an investment in a company, often measured by the price of the company's stock multiplied by the number of shares owned.

C Corporations

A type of corporation in the U.S. that is taxed separately from its owners.

Proprietorship

A business owned and run by one individual where there is no legal distinction between the owner and the business.

Taxed

Subjected to a financial charge or levy imposed by a government on income, transactions, or property.

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