Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected tobe as follows:R₁ =0.65%1.75%E(271) =E(3r1) = 1.85 %E(471) = 2.15%L₂= 0.05 %L3= 0.10%L4 = 0.12 %Using the liquidity premium theory, determine the current (long-term) rates.Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e., 0.1234 should be enteredas 12.34).Years1234Current (Long-term)Rates%%%

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Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 0.65% R₁ E(271) = 1.75% = 1.85% E(301) E(471) = 2.15% Using the liquidity premium theory, determine the current (long-term) rates. Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34). L2= 0.05% L3= 0.10% LA = 0.12 % Years Current (Long-term) Rates 1 2 3 4 % % %

Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 0.65% R₁ E(271) = 1.75% = 1.85% E(301) E(471) = 2.15% Using the liquidity premium theory, determine the current (long-term) rates. Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34). L2= 0.05% L3= 0.10% LA = 0.12 % Years Current (Long-term) Rates 1 2 3 4 % % %

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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Liquidity Premium Hypothesis Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 7.60% E(r2) = 8.70% L2 = 1.05% E(r3) = 8.80% L3 = 1.15% E(r4) = 9.10% L4 = 1.20% Using the liquidity premium hypothesis, what is the current rate on a four-year Treasury security?
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 6%, E(2r1) = 7%, E(3r1) = 7.60%, E(4r1) = 7.95% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Round your answers to 2 decimal places.)
One-year Treasury bills currently earn 5.50 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.75 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? 5.50% 5.625% 5.75% 11.25%
Vijay
The current one-year T-bill rate is .50 percent and the expected one-year rate 12 months from now is 1.38 percent. According to the unbiased expectations theory, what should be the current rate for a two-year Treasury security? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Current rate= %
An annual percentage rate (APR) is determined by annualizing the rate using compound interest. Select one: True False The more frequent the compounding, the higher the future value, other things equal. Select one: True False Which statement is NOT true? a. Figure A correctly displays the relation between FVs of $1 investment at the interest rates 12.7% and 9.8%. b. Investment of $1 needs more than 7 years to double its value at the rate 9.8%, while only requiring less than 6 yeas to double at 12.7%. c. Figure B correctly displays the relation between PVs of $3 future value at the interest rates 12.7% and 9.8%. d. A discount factor for 5 years at 12.7% is lower than the discount factor for 5 years at 9.8%. After reading the fine print in your credit card agreement, you find that the "low" interest rate is actually an 17.05% APR, or 1.4208% per month. What is the effective annual rate? a. 18.45% b. 19.41% c. 18.82% d. 19.56% A zero-coupon bond is a bond that pay no interest…
Suppose that the current one-year rate (one- year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1=6%, E(2r1) =7%, E(3r1) =7.5% E(4r1)=7.85% 1 Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. Show your answers in percentage form to 3 decimal places.
You have estimated spot rates as follows: r1 = 6.80%, r2 = 7.20%, r3 = 7.50%, r4 = 7.70%, r5 = 7.80%. a. What are the discount factors for each date (that is, the present value of $1 paid in year t)? (Do not round intermediate calculations. Round your answers to 3 decimal places.) b. Calculate the PV of the following $1,000 bonds assuming an annual coupon and maturity of : (i) 6.8%, two-year bond; (ii) 6.8%, five-year bond; and (iii) 11.8%, five-year bond. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Suppose 6-month Treasury bills are trading at a YTM of 1.1%, 12-month T-bills are trading at a YTM of 2.2%. If 18-month Treasury notes with a coupon rate of 3% are trading at par ($100), then what is the 18-month spot rate? Assume semi-annual compounding. Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321.
You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the 1-year forward rate for the period beginning one year from today, 2f1? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Maturity One day One year Two years Three years. Forward rate Yield 2.80% 6.30 7.30 9.80
Liquidity Premium Hypothesis Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 7.20% E(r2) 8.30% L2 .65% %3D E(r3) = 8.40% L3 = .75% E(r4) = 8.70% L4 = .80% Using the liquidity premium hypothesis, what is the current rate on a four-year Treasury security?
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 %

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