What is the nominal yield on a 10-year government T-note if the real rate is 4%, the expected inflation is 5%, the liquidity premium is 1%, and the maturity risk premium is 1%?
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- The following data are gathered for:· The real risk-free rate is 1.25%· Inflation premium is constant at 2.50%· Default risk premium is 5%· Liquidity risk premium is 0.50% What is the quoted rate on a short-term government security?The following data are gathered for: · The real risk-free rate is 1.25% · Inflation premium is constant at 2.50% · Default risk premium is 5% · Liquidity risk premium is 0.50% What is the quoted rate on a short-term government security? (Format: X.XX%)H4. The real risk-free rate is 2.15%. Inflation is expected to be 3.15% this year, 4.95% next year, and 2.7% 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. Please show proper step by step calculation
- The real risk-free rate of interest is 4.5%. Inflation is expected to be 4% in the upcoming year and 6% for each of the next 3 years. Assume that the maturity risk premium (MRP) is zero. What is the yield on a 4-year Treasury security? Question 3Answer a. 6.00% b. 10.00% c. 4.50% d. 5.50%Suppose the real risk-free rate of interest is 3% and inflation is expected to be 2% and 3% over the next two years. If a 2-year Treasury security yields 6%, what is the maturity risk premium for the 2-year Treasury security? 1.5% 0.5% 0.2% O 1.0%Please explain the reasoning behind this formula. Expected inflation rate=10Year T bill rate−10 Year Inflation − MRP Problem where this solution was used (for reference): Suppose the yield on a 10-year T-bond is currently 5.05% and that on a 10-year Treasury Inflation Protected Security (TIPS) is 1.80%. Suppose further that the MRP on a 10-year T-bond is 0.90%, that no MRP is required on a TIPS, and that no liquidity premium is required on any T-bond. Given this information, what is the expected rate of inflation over the next 10 years? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.
- Suppose the real risk-free rate is 3.2%, the average future inflation rate is 1.9%, and a maturity premium of 0.05% per year to maturity applies, i.e., MRP = 0.05% (t), where t is the years to maturity. What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is NOT valid? O 6.25% O 6.55% O 5.65% O 5.95% O 5.35%The real risk-free rate is 3 percent. Inflation is expected to be 3.5 percent this year, 5 percent next year, and 6 percent thereafter. The maturity risk premium is estimated to be 0.11 ´ (t - 1)%, where t is the number of years to maturity. What is the yield on a 7-year Treasury note? a. 9.66% b. 8.50% c. 0.77% d. 9.16% e. 7.16%Suppose 1 -year T-bills currently yield 7.00 % and the future inflation rate is expected to be constant at 4.70% per year. What is the real risk free rate of return 1.84% 2.76 % 2.46 % 1.96 % 2.30%
- 6. Problem 12-12 Capital Structure Analysis Hagen Horticulture and Supplies Limited has no debt outstanding, and its financial position is given by the following data: Assets (book market) EBIT Cost of equity, r Stock price, P Shares outstanding, n, Tax rate, T The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 40% debt based on market values, its cost of equity, f,, will increase to 9.57% to reflect the increased risk. Bonds can be sold at a cost, ra, of 7%. Hagen is a no-growth. firm. Hence, all its earnings are paid out as dividends, and earnings are expected to be constant over time. a. What effect would this use of leverage have on the value of the firm? The value of the firm would I $4,000,000 $500,000 8.75% $8 500,000 30% b. What would be the market value of Hagen's equity? Market value of equity=$of interest? The exact real rate? 10. Inflation and Nominal Returns Suppose the real rate is 1.8 percent and the inflation rate is 3.7 percent. What rate would you expect to see on a Treasury bill? 11. Nominal and Real Returns An investment offers a total return of 12 percentThe real risk-free rate is 2.05%. Inflation is expected to be 3.05% this year, 4.75% next year, and 2.3% thereafter. The maturity risk premium is estimated to be 0.05 × (t − 1)%, where . What is the yield on a 7-year Treasury note?