3. Use the data in the following table on Treasury securities of different maturities to solve this problem: 1 year 2 year Зуеar 2.50% 1.25% 2% Assume that the liquidity premium theory is correct. On this day, what did investors expect the interest rate to be on the one-year Treasury bill two years from that time if the term premium on a two-year Treasury note was 0.20%, and the term premium on a three-year Treasury note was 0.40%?

3. Use the data in the following table on Treasury securities of different maturities to solve this problem: 1 year 2 year Зуеar 2.50% 1.25% 2% Assume that the liquidity premium theory is correct. On this day, what did investors expect the interest rate to be on the one-year Treasury bill two years from that time if the term premium on a two-year Treasury note was 0.20%, and the term premium on a three-year Treasury note was 0.40%?

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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Currently, 3-year Treasury securities yield8.7%,7-year Treasury securities yield8.4%, and 10 -year Treasury securities yield8.2%. If the expectations theory is correct, what does the market expect will be the yield on 3-year Treasury securities seven years from today? 8.13%8.33%7.73%7.53%7.93%
3. The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. Suppose the interest rate is compounded once per year. Maturity (Years) Price ($) 970 960 910 870 1 2 3 4 Answer the following questions: (a) What is, according to the expectations theory, the one-year interest rate in the second year? (b) What is, according to the expectations theory, the one-year interest rate in the third year? (c) What is, according to the expectations theory, the one-year interest rate in the forth year?
An investor in Treasury securities expects inflation to be 2.2% in Year 1, 2.7% in Year 2, and 3.65% each year thereafter. Assume that the real risk-free rate is 2.45% and that this rate will remain constant. Three-year Treasury securities yield 5.50%, while 5-year Treasury securities yield 7.00%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Do not round intermediate calculations. Round your answer to two decimal places.
A plot of the yields on bonds with different terms to maturity but the same risk, liquidity, and tax considerations is known as O A. a yield curve. B. a risk-structure curve. OC. a term-structure curve. 5- O D. an interest-rate curve. Suppose people expect the interest rate on one-year bonds for each of the next four years to be 3%, 6%, 5%, and 6%. If the expectations theory of the term structure of interest rates is correct, then the implied interest rate on bonds with a maturity of four years is nearest whole number). %. (Round your response to the 2- Refer to the figure on your right. Suppose the expected interest rates on one-year bonds for each of the next four years are 4%, 5%, 6%, and 7%, respectively. 1. 1.) Use the line drawing tool (once) to plot the yield curve generated. 3 Term to Maturity in Years 2.) Use the point drawing tool to locate the interest rates on the next four years. 5. 3- Interest Rate .....
Interest rates on 4-year Treasury securities are currently 6.2%, while 6-year Treasury securities yield 8.05%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. %
Interest rates on 4-year Treasury securities are currently 5.4%, while 6-year Treasury securities yield 7.85%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.
Today, interest rates on 1-year T-bonds yield 1.7%, interest rates on 2-year T-bonds yield 2.5%, and interest rates on 3-year T-bonds yield 3.7%.a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. c. If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places.
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2022. All of the bonds have a par value of $1,000 and pay semiannual coupons. Rate ?? 6.252 6.163 Maturity Month/Year May 36 May 41 May 51 Bid 103.5462 104.4952 ?? Asked 103.6340 104.6409 ?? Change Ask Yield +.3015 2.329 +.4293 +.5405 ?? 4.031 In the above table, find the Treasury bond that matures in May 2036. What is the coupon rate for this bond? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
One-year Treasury securities yield 2.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 3.4%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. %
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) 1-year T-bill at beginning of year 1 1-year T-bill at beginning of year 2 1-year T-bill at beginning of year 3 1-year T-bill at beginning of year 4 2-year security 3-year security 4-year security Expected Return % % % Interest Rate 61 98 7% 108
Suppose the inflation rate is expected to be 6.75% next year, 4.3% the following year, and 2.3% thereafter. Assume that the real risk-free rate, r*, will remain at 1.85% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. Calculate the interest rate on 3-year Treasury securities.
Interest rates on 1-year, 2-year, and 3-year Treasury bills are 5%, 6%, and 7%, respectively. Assume that the pure expectations theory holds and that the market is in equilibrium. Which of the following statements is most correct? Group of answer choices The maturity risk premium is positive. Interest rates are expected to rise over the next two years. The market expects one-year rates to be 5.5% one year from today. Answers a, b, and c are all correct. Only answers b and c are correct.

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