FIN 325: Financial Institutions & Markets. Professor Greg Nini Interest Rates, part 1. page 76 Term...

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FIN 325: Financial Institutions & Markets. Professor Greg Nini Interest Rates, part 1. page 76 Term Premium Example #2 Suppos

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Answer 1

Answer #1

2 year term premium = 2 year spot rate - 1 year interest rate path in 2nd year

= 6% - 6%

= 0

5 year term premium = 5 year spot rate - 1 year interest rate path in 5th year

= 10% - 9%

= 1%

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Answer 2

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