The yield to maturity on one-year zero-coupon bonds is 7.3%. The yield to maturity on two-year zero-coupon bonds is 8.3%. Required: a. What is the forward rate of interest for the second year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Forward rate of interest b. If you believe in the expectations hypothesis, what is your best guess as to the expected value of the short-term interest rate next year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Short-term interest rate %

The yield to maturity on one-year zero-coupon bonds is 7.3%. The yield to maturity on two-year zero-coupon bonds is 8.3%. Required: a. What is the forward rate of interest for the second year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Forward rate of interest b. If you believe in the expectations hypothesis, what is your best guess as to the expected value of the short-term interest rate next year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Short-term interest rate %

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 real risk-free rate, r, is 1.3%. Inflation is expected to average 1.1% a year for the next 4 years, after which time inflation is expected to average 3.8% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 9.8%, which includes a liquidity premium of 0.4%. What is its default risk premium? Do not round Intermediate calculations. Round your answer to two decimal places.
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. 6.50 What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. 3.750 % %
Recall that on a one-year Treasury security the yield is 5.6100% and 6.7320% 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.) a 9.6049% b 6.4285% c 8.6217% d 7.5629% 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 round your intermediate calculations.) a 5.46% b 6.45% c 6.53% d 6.61%
Nikulbhai
The real risk-free rate, r*, is 1.4%. Inflation is expected to average 1.2% a year for the next 4 years, after which time inflation is expected to average 4.3% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10.7%, which includes a liquidity premium of 0.7%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
Suppose 1-year Treasury bonds yield 4.40% while 2-year T-bonds yield 5.70%. Assuming the pure expectations theory is correct, and thus the maturity risk premium for T-bonds is zero, what is the yield on a 1-year T-bond expected to be one year from now? Do not round your intermediate calculations. Round your final answer to 2 decimal places. a. 7.02% b. 5.66% c. 5.05% Od. 4.92% e. 7.32%
Recall that on a one-year Treasury security the yield is 4.0000% and 5.4000% 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 0.4%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 6.8509% 6.0096% 7.6322% 5.1082%
Interest rates on 1-year, 2-year, and 3-year Treasury bills are 5%, 6%, and 7%, respectively. Assume that the pure expectations theory holds and that the market is in equilibrium. Which of the following statements is most correct? Group of answer choices The maturity risk premium is positive. Interest rates are expected to rise over the next two years. The market expects one-year rates to be 5.5% one year from today. Answers a, b, and c are all correct. Only answers b and c are correct.
A 6.45 percent coupon bond with 24 years left to maturity is priced to offer a 5.7 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.2 percent. What would be the total return of the bond in dollars? (Assume interest payments are semiannual.) (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Answer is complete but not entirely correct. Total return $ 2.64 × What would be the total return of the bond in percent? (Assume interest payments are semiannual.) (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Answer is complete but not entirely correct. Total return 0.14%
The real risk-free rate, r*, is 2%. Inflation is expected to average 3.45% a year for the next 4 years, after which time inflation is expected to average 3.9% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10%, which includes a liquidity premium of 0.9%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
Bond j has a coupon of 6.2 percent. Bond k has a coupon of 10.2 percent. Both bonds have 20 years to maturity and have a YTM of 6.9 percent. a. If interest rates suddenly rise by 1 percent, what is the percentage price change of these bonds? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. \table[[,%delta in Price],[Bond j,,%
The real risk-free rate is 2.75%. Inflation is expected to be 3.75% this year, 4.25% next year, and 2.5% thereafter. The maturity risk premium is estimated to be 0.05 x (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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