1) You are given the following information: ● r = 1.0% ● ● The current interest rate on a 1 year loan to the U.S. government = 3.0% The MRP on 10 year bonds = 0.75% The LP on U.S. and Zeniba Inc. bonds=0 The interest rate on a 10 year loan to Zeniba Inc. is 1.5 times the rate on a 10 year loan to the U.S. government a) What is the inflation rate expected to be over the next year? b) Suppose the average annual inflation rate expected each year over the next 10 years is the same as the inflation rate expected over the next year. What should be the current interest rate on a 10 year loan to the U.S. government? c) What is the DRP on a 10 year loan to Zeniba Inc.?
1) You are given the following information: ● r = 1.0% ● ● The current interest rate on a 1 year loan to the U.S. government = 3.0% The MRP on 10 year bonds = 0.75% The LP on U.S. and Zeniba Inc. bonds=0 The interest rate on a 10 year loan to Zeniba Inc. is 1.5 times the rate on a 10 year loan to the U.S. government a) What is the inflation rate expected to be over the next year? b) Suppose the average annual inflation rate expected each year over the next 10 years is the same as the inflation rate expected over the next year. What should be the current interest rate on a 10 year loan to the U.S. government? c) What is the DRP on a 10 year loan to Zeniba Inc.?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1) You are given the following information:
r* = 1.0%
●
●
●
The current interest rate on a 1 year loan to the U.S. government = 3.0%
The MRP on 10 year bonds = 0.75%
The LP on U.S. and Zeniba Inc. bonds = 0
The interest rate on a 10 year loan to Zeniba Inc. is 1.5 times the rate on a 10 year loan to
the U.S. government
a) What is the inflation rate expected to be over the next year?
b) Suppose the average annual inflation rate expected each year over the next 10 years is the
same as the inflation rate expected over the next year. What should be the current interest
rate on a 10 year loan to the U.S. government?
c) What is the DRP on a 10 year loan to Zeniba Inc.?
How long
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