Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected tobe as follows:R1E(2r1)E(3r1)E(4r1)1.20%2.35%L2 =0.09%2.45%L3 =0.12%2.75%L4=0.14%Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round youranswers to 2 decimal places.)

Given, R1 = 1.20% L2 = 0.09% E(2r1) = 2.35% L3 = 0.12% E(3r1) = 2.45%…

Answered: Based on economists' forecasts and…

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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What is the discount yield, bond equivalent yield, and effective annual return on a $1 million Treasury bill that currently sells at 93.375 percent of its face value and is 70 days from maturity? (Use 360 days for discount yield and 365 days in a year for bond equivalent yield and effective annual return. Do not round intermediate calculations. Round your percentage answers to 3 decimal places. (e.g., 32.161)) Discount yield Bond equivalent yield Effective annual return % % %
Suppose today that you have the following information: yield on 10-year TIPS: 3.5% yield on 10-year Treasury note: 3.0% What is the expected annual rate of inflation (approximate) over the next 10 years?
Assume that the expected rates of inflation over the next 5 years are 9 percent, 7 percent, 10 percent, 8 percent, and 6 percent, respectively. What is the average expected inflation rate over this 5-year period? Group of answer choices 9% 7% %5 8%
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (ie.. years 2, 3, and 4, respectively) are as follows: 181 = 4%, E(201) = 5%, E(31) = 5.50 %, E(41) = 5.85% 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.) Years AGN- Current (Long-term) Rates
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: R1 = 0.80% = 1.95% E(201) E(3r1) E(41) = 2.05% = 2.35% Years 1 2 3 4 42= 0.07% 43= 0.11% L4= 0.13% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Current (Long-term) Rates % % % %
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: 0.80% = 1.95% R1 E(201) E(371) = $2.05% E(471) 2.35% L2= 0.07% L3= 0.11% L4= 0.13% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Years 1 2 3 4 Current (Long-term) Rates % % % %
3b. You read in the Wall Street Journal that 30-day treasury bills are currently yielding 8%. You are informed by a broker the following estimates of current interest rate premium: . Inflation premium = 5% • Liquidity premium = 1% Maturity risk premium = 2% Default risk premium = 2% Disregard cross product terms, i.e., if averaging is required, use the arithmetic average. On the basis of these data, what is the real risk-free rate of return.
Bhupatbhai
2. What does the following yield curve predict? Treasury yield curve for July 31, 2000. Maturity Yield (%) 1 month 3 months 6.20 6 months 6.35 1 year 2 years 6.30 З years 6.30 5 years 6.15 7 years 10 years 6.03 30 years 5.78
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 = 8%, E(2r1) = 9%, E(31) = 9.50%, E(4r1) = 9.85% 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.)
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 = 1%, E(211) = 4.30%, E(31) = 4.80%, E471) = 6.30% Using the unblased expectations theory, calculate the current (longterm) rates for 1-, 2-, 3-, and 4-year-maturity Treasury securities. Plot the resulting yield curve. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Year 1234 Current (Long-term) Rates %
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: R1 = 1.00% E(271) = 2.15% L2= 0.05% E(351) = 2.25% L3= 0.10% E(471) = 2.55% 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 entered as 12.34). Years 1 2 3 4 Current (Long-term) Rates

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