Suppose the real risk-free rate is 4.05% and the future rate of inflation is expected to be constant at 2.00%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Include cross-product terms, i.e., if averaging is required, use the geometric average. (Round your final answer to 2 decimal places.) a. 4.05% O b. 2.08% O c. 6.05% O d. 6.13% O e. 4.13%

Suppose the real risk-free rate is 4.05% and the future rate of inflation is expected to be constant at 2.00%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Include cross-product terms, i.e., if averaging is required, use the geometric average. (Round your final answer to 2 decimal places.) a. 4.05% O b. 2.08% O c. 6.05% O d. 6.13% O e. 4.13%

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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Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 -4% 19% Normal economy 0.40 20% 9% Boom 0.40 26% 8% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? O No O Yes b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) Expected Rate of Return Standard Deviation Stocks % % Bonds % c. Which investment would you prefer? Stock Bond Which investment would you prefer?
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The required return of a risk-free asset can be approximated by The pure time value of money and anticipated inflation premium. а. The 20-year T-bond yield. Ob. The 90-day T-bill rate plus the risk premium. C. The 90-day T-bill rate plus anticipated inflation premium. d.
The pure rate of return is 1.5%. Inflation is expected to be 2% this year and 3% during the next two years. Assume that the maturity risk premium for 2 and 3 years security are 1.2% and 1.3% respectively. What is the yield on 2 year Treasury Securities? Group of answer choices 5.47% 5.20% 5.37% 5.30% Please show the steps.
For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7 percent. You are also given the following covariance matrix for Securities J,K, andL. \table[[Covariance,Security J,Security K,Security L],[Security J,0.0012532,0.0010344,0.0019711],[Security K,0.0010344,0.0023717,0.0013558],[Security L,0.0019711,0.0013558,0.0048442]] Also assume that you form a portfolio by putting 0 percent of your funds in Security J, 40 percent of your funds in Security K, and 60 percent of your funds in Security L. Based on this information, determine the standard deviation of the resulting portfolio. ◻ 6.47% 5.27% 4.98% 5.82% 4.77%
Question 2: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has a beta, of 1.10. (could be done on word document or excel). Draw the security market line (SML) Use the CAPM to calculate the required return, on asset A. Assume that as a result of recent economic events, inflationary expectations have declined by 3%, lowering RF and RM to 5% and 9%, respectively. Draw the new SML on the axes in part a, and calculate and show the new required return for asset A. Step 1 Security market line (SML) is a graphical representation of how the approach of the capital asset pricing model (CAPM) operates. SML represents the combination of risk-free return, market return, and beta to depict the expected return of the security. CAPM is a financial approach that helps to determine the expected return of security by creating a relationship between the systematic risk associated with the security and returns of assets. Expected return on a stock is the…
Please answer the correct calculation please ASAP Don't answer by pen paper
According to the fisher equation, if the real rate of interest is 2.5% and the nominal rate of interest is 5.3%, the rate of inflation is forecast to be approximately 7.8% 2.7% 5.3% 2.8% Please show me all the work to find the answer. Thank you.
Nominal rate of return is 10.80%. Inflation rate is 6.95%. What is the real rate of return as per Fisher equation? a) 4.80% b) 17.75% c) 6.95% d) 3.60%
Consider the following data related to rates and inflation: denotes the real rate of return: 5% the expected rate of inflation: 4% The Fisher effect as expressed in an approximate form points to a nominal rate of interest of _____________, while the precise formula results in a nominal interest rate of _______________ Question 27 options: Approximate 9.00% Precise 8.80% Approximate 9.20% Precise 10.12% Approximate 9.20% Precise 9.00% Approximate 9.00% Precise 9.20%
Please show working. Please answer 1 and 2 1. The real risk-free rate is 2.75%, and inflation is expected to be 4.00% for the next 2 years. A 2-year Treasury security yields 8.25%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places. 2. The real risk-free rate is 2.9%. Inflation is expected to be 2.2% this year, 4.8% next year, and 2.65% 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.

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