The Wall Street Journal reports that the rate on 7-year Treasury securities is 1.45 percent and the rate on 9-year Treasury securities is 2.40 percent. According to the unbiased expectations theory, what does the market expect the 2-year Treasury rate to be seven years from today, E(7₂)? (Do not round intermediate calculations Round

The Wall Street Journal reports that the rate on 7-year Treasury securities is 1.45 percent and the rate on 9-year Treasury securities is 2.40 percent. According to the unbiased expectations theory, what does the market expect the 2-year Treasury rate to be seven years from today, E(7₂)? (Do not round intermediate calculations Round

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 yield on a one-year Treasury security is 4.6900%, and the two-year Treasury security has a 6.3315% yield. Assuming that the pure expectations theory is correct, what is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 6.799% O7.9988% O9.1186% O 10.1585% Recall that on a one-year Treasury security the yield is 4.6900% and 6.3315% 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 0.15%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) O 7.6942% O 8.7714% O9.7716% O 6.5401% Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now? (Note: Do not…
The Wall Street Journal reports that the rate on four-year Treasury securities is 2.1 percent and the rate on five-year Treasury securities is 2.7 percent. According to the unbiased expectations hypotheses, what does the market expect the one-year Treasury rate to be four years from today, E(5r1)? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
A recent edition of The Wall Street Journal reported interest rates of 11.25 percent, 11.60 percent, 11.98 percent, and 12.25 percent for 3-, 4-, 5-, and 6-year Treasury security yields, respectively. According to the unbiased expectation theory of the term structure of interest rates, what are the expected 1-year forward rates for years 4, 5, and 6? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Years Forward Rates 4 5 6 %
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?
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?
Consider the following information for a period of years: Arithmetic Mean Long-term government bonds 7.6% Long-term corporate bonds 7.7 Inflation 4.6 What is the real return on long-term government bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is the real return on long-term corporate bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
The market has an expected rate of return of 8.0 percent. The long-term government bond is expected to yield 4.8 percent and the U.S. Treasury bill is expected to yield 1.1 percent. The inflation rate is 3.2 percent. What is the market risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Suppose the average return on FTSE TMX Canada long-term bonds is 7.00% and the standard deviation is 9.00% and the average return and standard deviation on T-bills are 3.30% and 2.50%, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What is the probability that in any given year, the return on long-term corporate bonds will be greater than 9% ? Less than 0% ? Greater than 9% Less than 0% % % b. What is the probability that in any given year, the return on T-bills will be greater than 9%? Less than 0%? Greater than 9% Less than 0% % % c-1. In 1981, the return on FTSE TMX Canada long-term bonds was -4.29%. How likely is it that such a low return will recur at some point in the future? Probability % c-2. T-bills had a return of 9.00% in this same year. How likely is it that such a high return on IT-bills…
Interest rates on 4-year Treasury securities are currently 5.85%, while 6-year Treasury securities yield 7.85%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. 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 your intermediate calculations. Round your answer to two decimal places.
One-year T-bills currently earn 0.46 percent. You expect that one year from now, one-year T-bill rates will increase to 0.50 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Current rate on two-year Treasury securities
One-year Treasury securities yield 2.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 3.4%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. %
Analysts at New Lenox Securities have reported that the annual interest rate being paid on 3-year bonds issued by the U.S. federal government is 3.3%. The annual rate being paid on 2-year federal government bonds is 3.1%, and the rate being paid on 1-year federal government bonds is 2.8%. Assume also that liquidity and maturity risk premiums are zero (as in the examples we worked). According to the Expectations Theory, what annual interest rate does the market expect the federal government to pay on a 1-year bond originating in year 3? In previous question 9 you were asked to compute a different but related "implied forward interest rate.") O A. 3.70% O B. 330% OC. 3.07% D. 3.40% E. 3.55%

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