Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a coupon of 4.0% if it is par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells bl enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate your answers to 2 decimal places.) Economy Boom Normal Growth Recession Probability 0.20 0.60 0.20 YTM 11.0% 9.0% 7.0% Price Capital Gain Coupon Interest HPR

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a coupon of 4.0% if it is par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells bl enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate your answers to 2 decimal places.) Economy Boom Normal Growth Recession Probability 0.20 0.60 0.20 YTM 11.0% 9.0% 7.0% Price Capital Gain Coupon Interest HPR

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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The real risk-free rate is 3.5%. Inflation is expected to be 2.5% 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. % What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. %
Recall that on a one-year Treasury security the yield is 4.4600% and 6.6900% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.4%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 9.2933% 8.152% 10.353% 6.9292%
Interest rates on 4-year Treasury securities are currently 5.2%, while 6-year Treasury securities yield 7.25%. 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. %
3. The following is a list of prices for zero-coupon bonds with different maturities and par value of $1,000. Suppose the interest rate is compounded once per year. Maturity (Years) Price ($) 970 960 910 870 1 2 3 4 Answer the following questions: (a) What is, according to the expectations theory, the one-year interest rate in the second year? (b) What is, according to the expectations theory, the one-year interest rate in the third year? (c) What is, according to the expectations theory, the one-year interest rate in the forth year?
A 6.60 percent coupon bond with 15 years left to maturity is priced to offer a 5.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What would be the total return of the bond in dollars? (Assume interest payments are semiannual) (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Total return S 10 47 What would be the total return of the bond in percent? (Assume interest payments are semiannual) (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Total return
A one year zero coupon treasury bond yields 4.83% and a two year zero coupon treasury yields 4.88%. What is the expected 1 year interest rate 1 year from now, assuming no-arbitrage pricing and no liquidity premium? Enter answer in percents to 2 decimal places. For example, enter 14.15 for 14.15%.
How much would you pay for a zero coupon bond with a par value of $1000, a maturity of 21 years, if your required rate of return is 6.1%? Assume annual discounting. (Round your answer to the nearest penny.)
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%
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a 3.0% 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 3.0% 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 0.30 0.60 0.10 YTM 10.0% 8.0 % 7.0 % Price Capital Gain Coupon Interest HPR % % %
The real risk-free rate is 2.15%. Inflation is expected to be 3.15% this year, 4.35% next year, and 2.6% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round intermediate calculations. Round your answer to two decimal places. %
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.

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