-64-
and 1987. For this period, the average annual interest rate on
10-year U.S. Treasury bonds exceeded the rate on 3-month U.S.
Treasury bills by 1.1 percent. This is the annual premium for
short-term liquidity versus illiquidity over a 10-year period.
Dr. Cline determined that the differential, if compounded over a
12-year period, amounts to a multiple of 1.14, and that the
general market preference for liquidity means that the 12-year
encumbrance is worth a 12.3-percent discount. He then decreased
the 12.3-percent discount to 10 percent based on his belief that
the spread between the bill and the bond represented not only a
liquidity premium, but also a risk premium for interest rate
fluctuations.
Petitioner introduced a rebuttal witness, Dr. Kenneth Froot,
of the National Economic Research Associates, Inc. Dr. Froot
received a Ph.D. in economics from the University of California at
Berkeley in 1986. He has no direct experience with Brazil.
Petitioner also introduced Nancy Czaplinski, a chartered financial
analyst and an engagement director with American Appraisal
Associates, Inc. Ms. Czaplinski has an M.B.A in finance from the
University of Wisconsin at Milwaukee and is a C.P.A.
Dr. Froot first criticized Dr. Cline's use of U.S. Treasury
bills and bonds because they are both highly liquid instruments.
Ms. Czaplinski also criticized Dr. Cline's use of the interest
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