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 . 0.65% E(201) = 1.80% L2 =0.04% E(301) = 1.90% L3 = 0.08% E(471) = 2.20% L4 = 0.10% 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 % % %

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 . 0.65% E(201) = 1.80% L2 =0.04% E(301) = 1.90% L3 = 0.08% E(471) = 2.20% L4 = 0.10% 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 % % %

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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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.
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?
Find the prevailing rate of interest over the next 180 days if a Treasury bill maturing at that time has a bid price of 3.10 and an ask price of 2.9.
es Based on economists' forecasts and analysis, one-year T-bill rates and liquidity premiums for the next four years are expected to be as follows: 1R1 E(271) = .84% E(371) = .94% E(471) = 1.24% = .47% Year 1 Year 2 Year 3 Year 4 42 = 0.07% 43 L4 = 0.17% = 0.14% Identify the four annual rates. (Round your answers to 2 decimal places. (e.g., 32.16)) Annual Rates oto oto oto oto % % % %
Quantitative Problem: An analyst evaluating securities has obtained the following information. The real rate of interest is 2.5% and is expected to remain constant for the next 5 years. Inflation is expected to be 2% next year, 3% the following year, 4% the third year, and 5% every year thereafter. The maturity risk premium is estimated to be 0.1 x (t- 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the yield on a 5-year T-bond? Do not round intermediate calculations. Round your answer to two decimal places. % c. What is the yield on a 5-year corporate bond? Do not round intermediate calculations. Round your answer to two decimal places. % Icon Key Check My Work (3 remaining)
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.)
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?
What is the nominal yield on a 10-year government T-note if the real rate is 4%, the expected inflation is 5%, the liquidity premium is 1%, and the maturity risk premium is 1%? 1.5% • not enough information • 1.0% • 2.0% .
The inflation rates for 4 years are forecast to be 3%, 3%, 4%, and 5%. The interest rate exclusive of inflation is anticipated to be 6%, 5%, 4%, and 5% over this same period. If labor is projected to be $1,000, $1,500, $2,000, and $1,000 in then-current dollars, during those years, determine the present worth equivalent for labor cost.
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 = 0.55% R1 E(21) = 1.70% = 42 = 0.08% E(31) 1.80% 43 = L4= 0.12% 0.14% = E(41) 2.10% 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). Current (Long-term) Rates Years 1 % 2 % 3 % 4 5 %
As a newly hired analyst, you are presented the following yields: 1-year 4.6%; 2-year 4.8%; 3-year 4.9%; 4-year 4.8% and 5-year 5.2%. What is the rate on a 1-year treasury Security, 4 years from now?

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