Consider the following $1,000 par value zero-coupon bonds: Years until Bond Maturity A 1 B 2 C D 3 4 Interest rate Yield to Maturity 8.00% 9.00 9.50 10.00 Required: a. According to the expectations hypothesis, what is the market's expectation of the one-year interest rate three years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.) %

Consider the following $1,000 par value zero-coupon bonds: Years until Bond Maturity A 1 B 2 C D 3 4 Interest rate Yield to Maturity 8.00% 9.00 9.50 10.00 Required: a. According to the expectations hypothesis, what is the market's expectation of the one-year interest rate three years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.) %

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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Interest rates on 4-year Treasury securities are currently 6.2%, while 6-year Treasury securities yield 8.05%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. %
Refer to the following table. Maturity (years) Zero-coupon YTM=r Suppose you wanted to lock in an interest rate for an investment that begins in one year and matures in five years. What rate would you obtain if there were no arbitrage opportunities? 1 3.96% The rate for an investment that begins in one year and matures in five years would be. (Round the final answer two decimal places. Round all intermediate values to four decimal places as needed.) K 2 5.73% 3 5.73% 4 5.21% 5 4.68%
Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 7.9%. What is the duration if the yield to maturity is 11.9%? (Do not round intermediate calculations. Round your answers to 4 decimal places.) YTM 7.9% YTM 11.9% YTM Duration
Interest rates on 4-year Treasury securities are currently 5.4%, while 6-year Treasury securities yield 7.85%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.
The real risk-free rate is 3.00%. Inflation is expected to be 2.25% this year and 3.50% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. %
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a 4.0% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 4.0% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) Note: Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. Economy Boom Normal Growth Recession Probability 0.35 0.40 0.25 YTM 11.0% 9.0 % 7.0 % Price Capital Gain Coupon Interest HPR % % %
Provide table solutions
The real risk-free rate is 2.75%. Inflation is expected to be 1.75% this year and 4.75% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. 6.50 What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. 3.750 % %
One-year Treasury securities yield 2.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 3.4%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. %
Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity 1 YTM(%) 5.6% 2 3 4 6.6 7.1 7.6 According to the expectations hypothesis, what is the market's expectation of the yield curve one year from now? Specifically, what are the expected values of next year's yields on bonds with maturities of (a) one year? (b) two years? (c) three years? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) APCO D Bond Years to Maturity YTM (%) B 1 % C 2 % D 3 %
Interest rates on 1-year, 2-year, and 3-year Treasury bills are 5%, 6%, and 7%, respectively. Assume that the pure expectations theory holds and that the market is in equilibrium. Which of the following statements is most correct? Group of answer choices The maturity risk premium is positive. Interest rates are expected to rise over the next two years. The market expects one-year rates to be 5.5% one year from today. Answers a, b, and c are all correct. Only answers b and c are correct.
Bond j has a coupon of 6.2 percent. Bond k has a coupon of 10.2 percent. Both bonds have 20 years to maturity and have a YTM of 6.9 percent. a. If interest rates suddenly rise by 1 percent, what is the percentage price change of these bonds? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. \table[[,%delta in Price],[Bond j,,%

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