The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds.Use the table to calculate the liquidity premium for each multiyear bond.One-Year BondYearRate12.00%24.00%35.00%48.00%511.00%Multiyear Bond Rate2.00%5.00%7.00%9.00%10.00%The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.)11=0%21=131=55141==%do do do do%%%

Explanation: The liquidity premium is computed as current rate on a multi-year horizon bond…

Answered: The table below shows current and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Table 5.1 1 year 2 years З years 1.50% 2.25% 3.25% Table 5.1 shows the interest rates for Treasury securities of different maturities. Assume that the liquidity premium theory is correct. 103) Refer to Table 5.1 On this day, what did investors expect the interest rate to be on the one -year 103) Treasury bill in two years if the term premium on a two-year Treasury note is 0.25%? A) 1.875% B) 2.25% C) 2.375% D) 2.5% 104) Refer to Table 5.1 On this day, what did investors expect the interest rate to be on the one-year Treasury bill in two years if the term premium on a two-year Treasury note is 0.25% and the term premium on a three-year Treasury note is 0.75%? A) 2.375% 104) B) 3.25% C) 3.50% D) 4.75%
From the end of 2009 to the end of 2019, the size of the United States National Debt held by the public grew from $6.8 trillion to $17.2 trillion. During the same period, the 10 year US Treasury Bond yield to maturity fell from 3.59% in December 2009 to 1.86% in December of 2019. Explain how such an increase in the supply of government bonds can lead to a fall in the interest rate. Second, consider that the 10 year bond rate has fallen further in 2020 to 0.68 percent on October 1, despite a further increase in the national debt ($20.5 trillion as of June 30, 2020) due to the decline in the economy and increase in federal government spending. Why has this continued in 2020 during an economic crisis?
Interest-rate risk results from: Answer a. Bond prices being fixed over the life of the bond b. Inflation being uncertain c. A mismatch between an individual's investment horizon and a bond's maturity d. The fact that most people hold bonds until they mature
Assume that the expected inflation rises to Еπ₂. Consequently, the expected return on one-year discount bonds (discussed in Question 2) relative to other assets falls for any given price and interest rate. The demand for these bonds falls, and the supply rises. The new equations for the demand and the supply of these bonds are as follows: New demand for bonds: P₂ = -0.7Q₂ + 1050 New supply of bonds: P2 = Q₂ + 850 1. Calculate the new expected equilibrium quantity of bonds. Round your answer to two decimal places. [1] 2. Calculate the new expected equilibrium price of bonds. Round your answer to two decimal places. [1] 3. Calculate the new equilibrium interest rate in this market. Round your answer to two decimal places. [1]
Consider a bond without an expiration date that makes a fixed interest payment of $210 per year. Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.) Price of Bond Interest Rate (Dollars) (Percent) 1,200 1,000 750 600 Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. The line showing the relationship between bond prices and interest rates has a _____(POSITIVE/NEGATIVE) slope; in other words, there is _______(INVERSE / A DIRECT) relationship between bond prices and interest rates. NOTE- THIS QUESTION IS DIVIDED INTO SUBPARTS . PLEASE ANSWER…
Explain what the term "bond price elasticity" means. Would bond price elasticity indicate that zero-coupon or high-coupon bonds with the same yield to maturity have a greater price sensitivity? Why? What does this mean for the market value volatility of zero-coupon Treasury bonds vs high-coupon Treasury bonds in mutual funds?
11. If a yield curve looks like the one shown in the figure below, what is the market predicting about the movement of future short-term interest rates? What might the yield curve indicate about the market's predictions for the inflation rate in the future? Yield to Maturity Term to Maturity
d)Assume that all the information given previously is the same and the defaultrisk premium for corporate bonds rated AAA is 1.5 percent, whereas it is4 percent for corporate bonds rated B. Compute the interest rates onAAA- and B-rated corporate bonds with maturities equal to one year, twoyears, three years, four years, five years, 10 years, 20 years, and 30 years.
Based on the concept of present value, the yield to maturity of a coupon bond is calculated by: P C/ (1+i) + C/ (1+i) 2 + C/ (1+i) 3 + .C/ (1+i)" (P stands for the price of bond, C for the coupon payments, i for the yield to maturity, and n for the years to maturity.) True False
Interest rates and bond prices vary directly during inflation and inversely during recessions. 1) True 2) False
The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond. One-Year Bond Rate 2.00% 5.00% 8.00% 11.00% 13.00% The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.) 131 = = 151 = % % % % Year 1 2345 2 Multiyear Bond Rate 2.00% 5.00% 6.00% 8.00% 10.00%
3. ABC Corporation issued today a bond in favor of Mr. Barboncito and the bond has a face value of P1,000,000.00. Barboncito expects to earn at a bond rate of 7% and such bond matures six (6) years from today. If interest, i, equals 12% compounded yearly, a. What is the present value of the bond? b. The President of the corporation is bent on paying the yearly obligations to Barboncito, in addition to the yearly fund that the corporation has to set aside in anticipation of the maturity of the bond. How much then is the total yearly amount that the corporation has to prepare to meet its obligations?

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