DQuestion 1914 ptsAssume that the Pure Expectation Theory determines interest rates in the markets.Today's market rates for different maturities are as follows:1 year = 3%2 years = 4.6%3 years = 5.6%4 years = 6.8%5 years = 7.3%What is the implied 1 year interest rate for investing in 4 years?Enter your answer as a percentage, without the percentage sign (%), and rounded to 1decimal. For example, if your answer is 0.12345, this is equivalent to 12.345%, so justenter 12.4

Given the rates:4-year rate = 6.8%5-year rate = 7.3% First, we need to solve for i4: So, the implied…

Answered: D Question 19 14 pts Assume that the…

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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Problem 6-23 Real Returns (LO3) Suppose that you buy a TIPS (inflation-indexed) bond with a 2-year maturity and a (real) coupon of 4.4% paid annually. If you buy the bond at its face value of $1,000, and the inflation rate is 8.60% in each year. a. What will be your cash flow in year 1? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Cash flow b. What will be your cash flow in year 2? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Cash flow c. What will be your real rate of return over the two-year period? Note: Enter your answer as a percent rounded to 1 decimal place.
QUESTION 5 Consider the effect of an un-anticipated 1 basis point increase in the 5 year bond rate (xt) at timet, which persists at t+1, t+2, ... . Assuming the 2 year bond rate (zt) does not change, and no other shocks occur at any horizon, what is the most appropriate inference regarding the change in the 10 year bond rate (yt) in the long run (i.e., infinite horizon)? O a. The 10 year bond rate increases by 1.34 in the long-run. O D. The long-run change in the 10 year bond rate is between 1.2263 and 1.4537 with 95% confidence. O C. The 10 year bond rate is not significantly affected by the increase in the 5 year bond rate. O d. The effect cannot be computed because the data is not stationary.
Ins 8. Suppose that today's interest rate on 1-year bonds is 4% (i10 year bonds next year, in two years, and in three years are expected to be 5%, 6%, and 7%, respectively. 0.04). Interest rates on 1- ha a. According to the Expectations Theory of Term Structure, what are the equilibrium interest rates today for otherwise comparable 2-year, 3-year, and 4-year bonds? b. Draw the yield curve for that case. or
ces Problem 6-13 Unbiased Expectations Theory (LG6-7) Suppose we observe the following rates: 1R₁ = 10%, 1R2 = 12%. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year interest rate expected one year from now, E(21)? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Interest rate %
QUESTION 2 • The following two investment options are viewed under an annual effective interest rate of i. Investment A is a 10-year zero coupon bond which redeems at par-value 250. Investment B is a perpetuity-immediate paying an annual payment starting with 4 and having each successive payment increase by K% from the previous payment. • If the volatility of each investment is 8, then find the value of K. Give your answer as a decimal rounded to two places (i.e. X.XX)...i.e. if your answer was K% = 2.54%, you would answer 2.54. ||
Question 2 Using the spot rates below, find the price of a two-years to maturity risky bond that pays 2% annual coupon and has a z-spread of 30 bps (assuming Spot Curve face value of $100 and annual convention). Year YTM 1 0.50% 3.00% 5 3.10% Selected Answer: D. $99.73 Answers: A. $98.73 O B. $100.73 C. $97.73 D. $99.73
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QUESTION 15 Suppose that all investors expect that the interest rates for the 4 years will be as follows. What is the price of a 3-year zero coupon bond with par-$1,000? Year 1-Year Forward rate 4.6% 2 4.9% 3 5.2% 4 5.5% O a. $1,000.00 Ob. $866.32 Oc. $858.92 Od. $821.15

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