According to the expectation theory of the term structure, a flat yield curve indicates th Select one: O short-term interest rates are expected to decline moderately in the future. O short-term interest rates are expected to dazline sharply in the future. O short-term interest rates are expected to rise in the future. O short-term interest rates are expected to remain unchanged in the future.
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- Obtain weekly data from Refinitiv Eikon and plot the interest rates (bid and ask mid- rate) on 2-year commonwealth government bond (AU2Y-TBOND) and 10 yearcommonwealth government bond (au 10Y-TBOND) from January 2020. Determine theshape of the yield curve by using one of the interest rate theories you know and shareyour opinion on whether the Australian economy is heading for a boom or for arecession. Explain your choice.A9. Assuming that the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure for maturities of one to five years, and plot the resulting yield curves for the following paths of one- year interest rates over the next five years: a. 5%, 6%, 7%, 6%, 5% b. 5%, 4%, 3%, 4%, 5%. c. How would your yield curves change if people preferred shorter-term bonds over longer- term bonds?It is a fact that the federal government (1) encouraged the development of the savings andloan industry, (2) virtually forced the industry to make long-term fixed-interest-rate mortgages,and (3) forced the savings and loans to obtain most of their capital as deposits thatwere withdrawable on demand.a. Would the savings and loans have higher profits in a world with a “normal” or aninverted yield curve? Explain your answer.b. Would the savings and loan industry be better off if the individual institutions soldtheir mortgages to federal agencies and then collected servicing fees or if the institutionsheld the mortgages that they originated?
- Assume that it is January 1, 2003. The rate of inflation is expected to be 4 percent thought 2003. However, increased government deficits and renewed vigor in the economy are then expected to push information rates higher. Investors expect the inflation rate to be 5 percent in 2004, 6 per percent cent in 2005, and 7 percent in 2006. The real risk-free rate, k*, is expected to remain at 2 percent over the next 5years. Assume that on maturity risk premiums are required on bonds with 5 years of less to maturity. The current interest rate on 5 year T-bonds is 8 Percent. What is the average expected inflation rate over the next 4 year? What should be the prevailing interest rate on 4-year T-bond? What is the implied expected inflation rate in 2007, or Year 5, give that Treasury bonds which mature in the year yield 8 percent?A plot of the yields on bonds with different terms to maturity but the same risk, liquidity, and tax considerations is known as A. a term-structure curve. B. an interest-rate curve. C. a yield curve. D. a risk-structure curve. Suppose people expect the interest rate on one-year bonds for each of the next four years to be 4%, 4%, 5%, and 8%. 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 %. (Round your response to the nearest whole number). 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.) Use the line drawing tool (once) to plot the yield curve generated. 2.) Use the point drawing tool to locate the interest rates on the next four years. Carefully follow the instructions above, and only draw the required objects. Interest Rate 1 2- 6- 2 3 Term to Maturity in Years 5 ♫a) Assume that the nominal return on U.S. government T-bills was 10% during 2002, when the rate of inflation was 6%. The real risk-free rate of return on theseT-bills was: b) When individuals believe they have sufficient income and assets to cover their expenses while maintaining a reserve for uncertainties, they are most likely in the phase of the investment life cycle. gifting B. consolidation C. accumulation D. spending c) Find the duration of a 3-year bond with annual coupon payments of $80 and a par value of $1,000. The current market price of the bond is $950.25. If the YTM of the bond dropped by 1%, what would happen to the bond price?
- If the 1rst year rate for the next 5 years is expected to be 6%, 7%,8%, 9%,10% and the preference of the investors for short term bonds mean that the liquidity fees for 1 to 5 years is:0%, 0.5%, 1%, 1.5%, 2%, calculate the interest rates that the liquidity theory predicts. Analyse the theory and design the yield curveWhat does a steep upward sloping yield curve indicate? You determining your answer keep in mind the Fisher equation: i=r+π^e i=r+π^e, where i is the nominal interest rate, r is the real interest rate and π^e is r the expected inflation rate. Group of answer choices higher short term expected inflation higher long-term expected inflation lower long-term expected inflation random changes in expected inflationIf the inflation rate is expected to increase, would this increase or decrease the slopeof the yield curve?
- Explain how the following events will affect the demandfor money according to the portfolio theories of moneydemand:a. The economy experiences a business cycle contraction.b. Brokerage fees decline, making bond transactionscheaper.c. The stock market crashes. (Hint: Consider both theincrease in stock price volatility following a marketcrash and the decrease in wealth of stockholders.)In this question, use the approximate formula-as given by the Fisher equation-for calculating the the real rate of interest. Assume a fixed real interest rate and everyone believes the Central Bank's forecasts. Believing that inflation will be 1% for the year, the current yield on a government bond that matures in one year is 2.9%. The Central Bank then revises its inflation forecast to 1.6% for the year. What will be the yield on government bonds maturing in one year after this revision? Round to one decimal place and do not enter the % sign. If your answer is 1.333%, enter 1.3. If your answer is 1.666%, enter 1.7. If appropriate, remember to enter the negative sign.True or False: According to the Rule of 72, doubling time increases as interest rates increase. O True O False