Question 2: Answer the following Tiwo questions:(CLO-2)1 a. A two-year Treasury security curently earns 1.94%. Over the next two years, the real risk-freerate is expected to be 1.00% per year and the inflation premium is expected to be 0.50% peryear. Calculate the maturity risk premium on the two-year.Answer:b. Calculate the present value of $5,000 received five years from today if yourinvestmentpays6% compounded annually and 8% compounded annually. What do your answers tell you aboutthe relation between present values and interest rates.Answer:b.(1) PV =

Here, 2-year Treasury security yield = 1.94% Real risk-free rate = 1.00% Inflation premium = 0.50%…

A two-year Treasury security currently earns 1.94%. Over the next two years, the real risk-free rate is expected to be 1.00% per year and the inflation premium is expected to be 0.50% per year. Calculate the maturity risk premium on the two-year. wer:

A two-year Treasury security currently earns 1.94%. Over the next two years, the real risk-free rate is expected to be 1.00% per year and the inflation premium is expected to be 0.50% per year. Calculate the maturity risk premium on the two-year. wer:

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 18P

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Question 2: Answer the following Tiwo questions: (CLO-2) 1 a. A two-year Treasury security currently earns 1.94%. Over the next two years, the real risk-free rate is expected to be 1.00% per year and the inflation premium is expected to be 0.50% per year. Calculate the maturity risk premium on the two-year. Answer:
Suppose the term structure of risk-free interest rates is as shown below: Term Rate (EAR %) 1 year 1.98 2 years 2.35 3 years 2.63 5 years 3.23 ← 7 years 3.84 10 years 4.13 20 years 4.99 a. Calculate the present value of an investment that pays $5,000 in two years and $2,000 in five years for certain. b. Calculate the present value of receiving $400 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year four would be the average rate in year three and year five) c. Calculate the present value of receiving $2,300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.) a. Calculate the present value of an investment that pays $5,000 in two years and $2,000 in five years for certain. The present value of the investment is $. (Round to the nearest…
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SUMMER CENGAGE FINA 5100: 1.If you deposit $5,000 in a bank account that pays 9% interest annually, how much will be in your account after 5 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ 2. What is the present value of a security that will pay $4,000 in 20 years if securities of equal risk pay 5% annually? Do not round intermediate calculations. Round your answer to the nearest cent. $ 3. Your parents will retire in 27 years. They currently have $400,000 saved, and they think they will need $1,850,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? Round your answer to two decimal places.
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Assume you make a deposit of $7,500 now into a saving account that pays 12% per year, compounded quarterly. If you want to know the total amount after 2 years, the value of interest rate (i) you should use in the F/P factor is: Select one: а. 3% b. 4 % с. 24% d. 12 %
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a. If starting at t ≥ 1, increasing t by one year multiplies the present value by b. Set the initial deposit to $10k, the annual interest rate to 5%, and years to compound to 10. Increasing the present value from $10k to $12k will increase the future value in 10 years by: CA a larger present value an additional 1+r 1+r r
Give typing answer with explanation and conclusion
3. *A savings plan requires an investor to pay 10 installments, each one of $500, due at the end of every year for 10 years. One year after the last of such installments the bank will start making annual payments to the investor, each one for a fixed amount P, for n years. Assume an effective interest rate of 5% p.a. (a) If n = 7 determine the value of P. (b) If n = ∞o, i.e. payments from the bank continue indefinitely, determine the value of P.
Suppose the term structure of risk-free interest rates is as shown below: 5 yr 7 yr 10 yr 20 yr Term 1 уг 2 yr 3 yr 3.24 3.79 4.09 5.05 2.07 2.46 2.71 Rate (EAR %) a. Calculate the present value of an investment that pays $1,000 in two years and $3,000 in five years for certain. b. Calculate the present value of receiving $100 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year 4 would be the average rate in year 3 and year 5.) c. Calculate the present value of receiving $1,800 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.)
Give typing answer with explanation and conclusion "One-year Treasury bills currently earn 2.35% and you expect that one year from now, 1-year Treasury bill rates will increase to 2.61% and that two years from now, one-year Treasury bill rates will increase to 3.11%; If the unbiased expectations theory is correct, what should the current rate be on a three-year Treasury security?" one year is 14.6% what is it in decimal form