A real risk-free rate is currently -1.0%. A broker at INV Securities, has given you the following estimates of current interest rate premiums: Inflation: 6%, Liquidity Risk Premium 2%, Maturity Risk Premium 2%, and Default Risk Premium 5%. Based on these data, what is the rate of short-term U.S. Treasuries?

A real risk-free rate is currently -1.0%. A broker at INV Securities, has given you the following estimates of current interest rate premiums: Inflation: 6%, Liquidity Risk Premium 2%, Maturity Risk Premium 2%, and Default Risk Premium 5%. Based on these data, what is the rate of short-term U.S. Treasuries?

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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You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.0%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: Inflation premium = 3.50% Liquidity premium = 0.6% Maturity risk premium = 1.85% Default risk premium = 2.15% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.
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At present, the real risk free rate of interest is 0.020 while inflation is expected to be 0.020 for the next 2 years. If a 2 year Treasure Note vields 0.047. What is the Maturity Risk Premium for this 2 ear Treasury Note? GIVE ANSWER IN DECIMAL NUMBERS. (3 DECIMAL PLACES) Assume the expected inflation rate to be 0.034. If the current current real rate of Iinterest is 0.065. What would the nominal rate of interest be? GIVE ANSWER IN DECIMAL NUMBERS. (3 DECIMAL PLACES) At present, 10 year Treasury Bonds are yielding 0.039. while a 10 year Corporate Bond is yielding 0.066. If the liquidity risk premium on the corporate bond is 0.003. What is the Corporate Bonds Default Risk Premium?ANSWER IN DECIMAL NUMBERS ONLY TO 3 PLACES (AS SHOWN IN THE You are considering an investment that you expect will return an 0.089 return next year and you expect your real rate of return will be 0.125. What do you expect inflation to be next vear?GIVE ANSWER IN DECIMAL NUMBERS. (3 DECIMAL PLACES)
Question 2 In 6-month from today, a U.S. based company will receive 2,000,000 Australian dollars (AUD) and the company wants to hedge the exchange rate risk. The expected AUD spot rate in 6-month will either appreciate by 5% (p.a) with 40% probability or depreciate by 10% (p.a.) with 60% probability. All rates are continuous compounding (please round your answers to 4 decimals in the exchange rate calculations). As the financial manager of the company, you look at Bloomberg and collect the following information: • U.S. interest rate: . . 4% p.a. 5% p.a. 1 AUD=0.63 USD Spot rate: Call option premium 0.03 USD, with exercise exchange rate 1 AUD-0.65 USD and 6-month maturity Put option premium 0.02 USD, with exercise exchange rate 1 AUD-0.64 USD and 6-month maturity Australian interest rate: 1) Calculate the 6-month forward exchange rate, describe how a forward agreement can be used to hedge the receivable money, and calculate the resulting amount of USD in 6 months.
At present, the real risk free rate of interest is 0.020 while inflation is expected to be 0.020 for the next 2 years. If a 2 year Treasure Note vields 0.045. What is the Maturity Risk Premium for this 2 ear Treasury Note? GIVE ANSWER IN DECIMAL NUMBERS. (3 DECIMAL PLACES) Assume the expected inflation rate to be 0.040. If the current current real rate of Iinterest is 0.083. What would the nominal rate of interest be? GIVE ANSWER IN DECIMAL NUMBERS. (3 DECIMAL PLACES) At present, 10 year Treasury Bonds are yielding 0.039. while a 10 year Corporate Bond is yielding 0.066. If the liquidity risk premium on the corporate bond is 0.003. What is the Corporate Bonds Default Risk Premium?ANSWER IN DECIMAL NUMBERS ONLY TO 3 PLACES (AS SHOWN IN THE You are considering an investment that you expect will return an 0.038 return next year and you expect your real rate of return will be 0.69. What do you expect inflation to be next vear?GIVE ANSWER IN DECIMAL NUMBERS. (3 DECIMAL PLACES)
Please see attached. Definitions: Yield to maturity (YTM) is the return the bond holder receives on the bond if held to maturity. Treasury note is a U.S. government bond with a maturity of between two and ten years. Current yield is the annual bond coupon payment divided by the current price.
A recent edition of The Wall Street Journal reported interest rates of 11.25 percent, 11.60 percent, 11.98 percent, and 12.25 percent for 3-, 4-, 5-, and 6-year Treasury security yields, respectively. According to the unbiased expectation theory of the term structure of interest rates, what are the expected 1-year forward rates for years 4, 5, and 6? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Years Forward Rates 4 5 6 %
Which of the following statements is (are) TRUE? Select one or more alternatives: If the AUD trades at a forward premium relative to the NZD, we would expect the NZD risk-free rate to be higher than the AUD risk-free rate. If the 1-year AUD risk-free rate is higher than the 1-year NZD risk-free rate then the value of the NZD will rise relative to the AUD over the next year. Assuming it doesn't hedge, a New Zealand based company importing Australian products will suffer if the value of the AUD rises relative to the NZD. □ If covered interest rate parity holds, then uncovered interest rate parity must also hold.
Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 2.00% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered , i.e., if averaging is required, use the geometric average. (Round your final answer to 2 decimal places.)
Today is the 10th January 2023. You want to buy a Floating Rate Note (FRN) that matures on the 10th July 2027 and pays an annual coupon equal to LIBOR. Compute the fair price of the note. Use the data in Table 1. The LIBOR rate at selected dates are showed in Table 3. Please show your calculations. Discuss your result.
The market has an expected rate of return of 8.0 percent. The long-term government bond is expected to yield 4.8 percent and the U.S. Treasury bill is expected to yield 1.1 percent. The inflation rate is 3.2 percent. What is the market risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
What should be the value of a Bankers' Acceptance with a $100,000 face value and 79 days until maturity quoted on a discount basis yielding 1.8935% with the current inflation rate of 2.2972? Consider the same question above assuming a $250,000 face value and 279 days until maturity quoted on a discount basis yielding .8935% with the current inflation rate of 1.467?

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