**Determinants of Interest Rate for Individual Securities***The Wall Street Journal* reports that the rate on 3-year Treasury securities is 7.40 percent, and the 6-year Treasury rate is 7.65 percent. From discussions with your broker, you have determined that expected inflation premium is 2.90 percent next year, 3.15 percent in Year 2, and 3.35 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.70 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?

Given, 6-year treasury rate = 7.65% Inflation premium = 3.35% Real interest rate = 3.70%

Answered: Determinants of Interest Rate for…

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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Currently, 3-year Treasury securities yield 9%, 7-year Treasury securities yield 8.6%, and 10-year Treasury securities yield 8.3%. If the expectations theory is correct, what does the market expect will be the yield on 7-year Treasury securities three years from today? O 8.60% O 8.00% O 8.40% O 8.20% O 8.80%
One-year Treasury bills currently earn 5.50 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.75 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? 5.50% 5.625% 5.75% 11.25%
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2022. All of the bonds have a par value of $1,000 and pay semiannual coupons. Rate ?? 5.424 6.183 Maturity Month/Year May 32 May 35 May 41 Bid 103.4664 104.5004 ?? Asked Change 103.5392 +.3067 104.6461 ?? +.4341 +.5457 Ask Yield 6.079 ?? 4.111 In the above table, find the Treasury bond that matures In May 2035. What is your yield to maturity if you buy this bond? Note: Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Yield to maturity 96
Using the following information, determine the default risk premium on the 10 year AA corporate bond: Rate % inflation 1.96 T-bill 5.00 10y T-Bond 6.00 10y AAA Corporate 6.46 10y AA Corporate 7.76
eBook 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. % What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. %
Please see attached. Definitions: Yield to maturity (YTM) is the return the bond holder receives on the bond if held to maturity. Treasury note is a U.S. government bond with a maturity of between two and ten years. Current yield is the annual bond coupon payment divided by the current price.
Treasury notes and bonds. Use the information in the following table: . What is the price in dollars of the February 2001 Treasury note with semiannual payment if its par value is $100,000? What is the current yield of this note? Treasury note is a U.S. government bond with a maturity of between two and ten years. Par value is the principal amount to be repaid at the maturity of the bond. Current yield is the annual bond coupon payment divided by the current price.
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)
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2022. All of the bonds have a par value of $1,000 and pay semiannual coupons. Rate 22 6.052 6.143 Maturity Month/Year May 32 May 37. May 47 Coupon rate Asked Bid 103.5410 103.6288 104.4900 22 104.6357 22 Change +.3248 +.4245 +.5353 In the above table, find the Treasury bond that matures in May 2032. What is the coupon rate for this bond? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 2.80% Ask Yield 2.249 77 3.951
LOW4486452: The coupon rate is 3.1%, the last trade price is $111.33, and the Maturity date is 05/03/2027 Using the bond LOW4486452, assume that the price does not include accrued interest. Calculate the market price of that bond in dollars and calculate the accrued interest. You will assume that today is the 1st of November. Also, assume that the bond pays interest on the month that the bond matures and 6 months after. Also, assume that the interest is paid on the first of the month no matter the maturity date. For example, suppose a bond matures on 4/8/2042. You will assume that interest is paid on 4/1 and 10/1 Making these assumptions, how much accrued interest would you pay the owner if you bought the bond? What would the total amount be that you paid for the bond?
Currently, 3-year Treasury securities yield8.7%,7-year Treasury securities yield8.4%, and 10 -year Treasury securities yield8.2%. If the expectations theory is correct, what does the market expect will be the yield on 3-year Treasury securities seven years from today? 8.13%8.33%7.73%7.53%7.93%
The Wall Street Journal reports that the rate on 3-year Treasury securities is 7.10 percent, and the 6-year Treasury rate is 7.35 percent. From discussions with your broker, you have determined that expected inflation premium is 2.60 percent next year, 2.85 percent in Year 2, and 3.05 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.55 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?

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