Suppose government economists have forecasted one-year T-bill rates for the following two years. They are as follows: Year 1-year rate 1 4.50% 2 5.00% At what annual required rate of interest, bond investors would be willing to purchase a 2-year T-bond now? 9.725% or higher. 4.75% or higher. 4.875 or lower. 9.50% or lower.

Suppose government economists have forecasted one-year T-bill rates for the following two years. They are as follows: Year 1-year rate 1 4.50% 2 5.00% At what annual required rate of interest, bond investors would be willing to purchase a 2-year T-bond now? 9.725% or higher. 4.75% or higher. 4.875 or lower. 9.50% or lower.

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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D3) Finance The spread between the yield on a five-year bond issued by a company and the yield on a similar risk-free bond is 80 basis points. Assuming a recovery rate of 40%, estimate the average hazard rate per year over the five-year period. If the spread is 70 basis points for a three-year bond, what do your results indicate about the average hazard rate in years 4 and 5?
Suppose a U.S. government bond promises to pay $3.000 four years from now. If the going interest rate on 4-year government bonds is 5%. how much is the bond worth today? PV = FV /1 + 1N
The real rate of interest is 5,20% and inflation is expected to be 3,60% for the next three years. A three-year treasury security yields 14,89%. What is the maturity risk premium for the three-year security? O 1. 6,09% O 2. 8,80% O 3. 9,69% O4. 11,29%
Three-year Treasury bills currently yield 6 percent. Four-year Treasury bills currently yield 6.5 percent. Assume that the expectations theory What does the market believe the rate will be on one-year Treasury securities three years from now? holds. a. 8.0% b. 8.5% c. 9.0% d. 9.5% e. 10.0%
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 0.85% R₁ = E(2r1) = 2.00% E(3r1) = 2.10% E(41) = 2.40% 42 = 43 = 0.08% 0.10% L4 44 = 0.12% 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). Years 1 2 3 4 Current (Long-term) Rates % % % %
Suppose the yield on a bond that pays $100 in one year is currently 2%. If interest rates suddenly spike so that newly issued similar 1 year $100 bonds yield 4%, the price of the original bond will fall from 98.04 to 96.15.
During a period of severe inflation, a bond offered a nominal HPR of 87% per year. The inflation rate was 78% per year. a. What was the real HPR on the bond over the year? (Round your answer to 2 decimal places.) Real HPR % b. Find the approximation rreal ľnom i. Approximation %
Suppose the U.S. Treasury offers to sell you a bond for $2,000. No payments will be made until the bond matures 15 years from now, at which time it will be redeemed for $4,000. What interest rate would you earn if you bought this bond at the offer price?
Suppose a state of California bond will pay $1,000 eight years from now. If the going interest rate on these 8-year bond is 6.4%, how much is the bond worth today?
What is the tex-equivalent interest rate needed if you purchase a municipal bond wiht a face value of %5000, a coupon rate of 4%, and a maturity date of 7 years? Assume you are in the 30% marginal federal tex bracket. 5.71% 3.30% 5.41% 7.21%
1. Consider a real return bond with a face value of $15,000 and a coupon yield of 5.2%. What is the coupon payment after one year if the inflation rate is 6.8%? Select one: a) $817.44 b) $833.04 c) $825.24 d) $809.64 I

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