**Unbiased Expectations Theory**Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:- \( ^1R_1 = 4.35\% \)- \( E(^2r_1) = 5.35\% \)- \( E(^3r_1) = 5.85\% \)- \( E(^4r_1) = 6.28\% \)Using the unbiased expectations theory, what is the current (long-term) rate for four-year-maturity Treasury securities?

Current long term rate for four year maturity treasury securities will be geometric mean of one year…

Answered: Unbiased Expectations Theory Suppose…

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 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%
You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the 1-year forward rate for the period beginning one year from today, 2f1? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Maturity One day One year Two years Three years. Forward rate Yield 2.80% 6.30 7.30 9.80
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:1R1 = 2.62%, E(2r1) = 3.90%, E(3r1) = 4.40%, E(4r1) = 5.90%Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:1R1 = 2.50%, E(2r1) = 3.75%, E(3r1) = 4.25%, E(4r1) = 5.75% Using the unbiased expectations theory, calculate the current (long-term) rates for 1-, 2-, 3-, and 4-year-maturity Treasury securities
es Based on economists' forecasts and analysis, one-year T-bill rates and liquidity premiums for the next four years are expected to be as follows: 1R1 E(271) = .84% E(371) = .94% E(471) = 1.24% = .47% Year 1 Year 2 Year 3 Year 4 42 = 0.07% 43 L4 = 0.17% = 0.14% Identify the four annual rates. (Round your answers to 2 decimal places. (e.g., 32.16)) Annual Rates oto oto oto oto % % % %
You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the 1-year forward rate for the period beginning one year from today, 2f1? (Round your answer to 2 decimal places.) Maturity One day One year Two years Three years Forward rate Yield 2.20% 5.70 6.70 9.20 %
Finding Forward Rates Suppose the following yield curve: 1-period rate = 4.75%, 2-period rate=4.85%, 3-period rate= 4.90%, 4 period rate=5.01%. What is the 2 year forward rate in 2 years? What is 1 year rate in 2 years?
If the rate of inflation is 2.8% per year, the future price p (t (in dollars) of a certain item can be modeled by the following exponential function, where t is the number of years from today. p(t) = 600(1.028) Find the current price of the item and the price 9 years from today. Round your answers to the nearest dollar as necessary. Current price: Price 9 years from today: S|
Assume that the expected rates of inflation over the next 5 years are 9 percent, 7 percent, 10 percent, 8 percent, and 6 percent, respectively. What is the average expected inflation rate over this 5-year period? Group of answer choices 9% 7% %5 8%
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 = 0.55% R1 E(21) = 1.70% = 42 = 0.08% E(31) 1.80% 43 = L4= 0.12% 0.14% = E(41) 2.10% 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). Current (Long-term) Rates Years 1 % 2 % 3 % 4 5 %
Based on the table below, the 2-year implied spot rate is closest to: Forward rate 1 year forward rate at time zero (1f0) 1 year forward rate 1 year from now (1f1) 1 year forward rate 2 year from now (1f2) 1 year forward rate 3 year from now (1f3) 1 year forward rate 4 year from now (1f4) Value 0.80% 1.12% 3.94% 3.28% 3.14% All rates are annual rates stated for a periodicity of one (effective annual rates). ○ 1.93% 0.96% ○ 1.31%
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 = 0.80% = 1.95% E(201) E(3r1) E(41) = 2.05% = 2.35% Years 1 2 3 4 42= 0.07% 43= 0.11% L4= 0.13% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Current (Long-term) Rates % % % %

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