YIELD CURVES Plots interest rates on different securities of similar default risk for a given day Used to demonstrate the difference in interest rates based on time to maturity - Upward sloping curves show securities with longer times/higher yields to maturity. Figure 5.5 Yield Curve for February 15, 1997 7 2 10 15 20 25 30 Time to Maturity (Years) Yield to Maturity (Percent)
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can you explain to me the chart, especially how you read it.
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- Classify the following event as mostly systematic, mostly unsystematic: "Short-term interest rates increase unexpectedly" a. Systematic b. Unsystematic Calculate the arithmetic mean return of the following returns Date Return 11/01/2018 9.25% 11/14/2018 6.51% 12/01/2018 -4.61% 12/14/2018 9.14% NOTE: Enter the PERCENTAGE number rounding to two decimals. If your decimal answer is 0.034576, your answer must be 3.46. DO NOT USE the % signConsider the following money market information being quoted: Which of the following statements is true? Particulars GBP Interest Rate THB Interest Rate Spot Rate 1-year Expected Spot Rate Bid Rate 6.100% 10.550% THB5.6601/GBP THB5.9037/GBP C. Ask Rate 6.125% 10.625% THB5.6622/GBP THB5.9961/GBP a. There is an arbitrage which can only be made by initially borrowing GBP and then investing in THB. b. More than one of the options in this question are correct. The THB is selling at a premium to the GBP in the future. O d. There is an arbitrage which can only be made by initially borrowing THB and then investing in GBP.Question 2: Given the interest rate determinants information below: Scenario A Scenario B Average expected inflation (IP) 4% 8% Risk-free rate of return (Rf) 1.75% 3% Default Risk Premium (DRP) 1.1% 0.6% Maturity risk premium (MRP) .008 x (t – 1) .006 x (t – 1) Determine the Nominal interest rate (INOM) on 10 years’ (t) security for both the scenarios to decide whether Scenario A or Scenario B is better.
- Q2: Suppose the current 1-year spot rate is 3% and the forward rate from time 1 to time 2 consistent with the current term structure of interest rates is 2%. Determine the 2-year discount factor from time 2 back to time 0.Present Value Interest Factors Number of Periods 1 2 3 4 5 5% 9524 .9070 8638 8227 7835 Multiple Choice Interest Rates 15% 8696 7561 6575 5718 4972 The calculation of 1/r (wherer interest rate). 10% 9091 8264 7513 6830 6209 You are given the table above to calculate the present value of the future cash flows of an investment. What do the values in the table represent? 20% 8333 6944 5787 4823 4019 The calculation of (1+r) (wherer interest rate and t-number of perlods).ook int ences Problem 2-11 (LG 2-7) Suppose we observe the three-year Treasury security rate (13) to be 4.9 percent, the expected one-year rate next year-E(21)-to be 5.4 percent, and the expected one-year rate the following year-E(31)-to be 6.4 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places. (e.g., 32.16)) _________% One-year Treasury security rate
- 1. Solve for Return of Risk Free Asset and its average Year Risk free rate (%) Inflation (%) Return risk-free asset 2011 4.51 3.00 ??? 2012 3.11 2.20 ??? 2013 2.61 2.70 ??? 2014 2.75 1.70 ??? 2015 2.34 1.70 ??? 2016 1.78 1.50 ??? 2017 1.77 1.90 ??? 2018 2.02 1.80 ??? 2019 0.90 1.80 ??? 2020 0.02 0.90 ??? Average 2.18% ??? 2. Assuming the following: Average Return (Risky Portfolio) 3.86% Standard Dev (Risky Portfolio) 10.56% Average Risk Free Rate 2.18% Return on Risk Free Asset Avg ??? Using the formula: E(rc)=rf + y* (E(rp) - rf) Solve for: 1. % of Risky Assets (y): 2. % of Risk Free Assets (1-y): Note: You wish to generate a 7% return for your complete portfolio E(rc)In a gap analysis, the quantity of assets repricing within one year is Assets Variable rate (prime-based) HELOCS maturing1 year 40 20 Federal Reserve Bank reserves 30 Fixed rate interest-only loans maturing1 year 40 120 O 110 130 100 80 90Real risk-free rate (r") = 3.0% Expected inflation rates: Year 1 = 3.0 % , Year 2-3.5%, Year 3 = 4.0%, Year 4- 4.0%, Year 5 and after = 4.5% - Liquidity premium (LP) - 0.5% IM Maturity risk premium (MRP) = 0.05 x (t-1)% Default risk premium (DRP) = 2.5% What is the corporate bond yield spread? 3.50% O 3.00% 2.45% 5.5%
- 1An annual percentage rate (APR) is determined by annualizing the rate using compound interest. Select one: True False 2The more frequent the compounding, the higher the future value, other things equal. Select one: True False 3Which statement is NOT true?  a. Figure A correctly displays the relation between FVs of $1 investment at the interest rates 12.7% and 9.8%. b. Investment of $1 needs more than 7 years to double its value at the rate 9.8%, while only requiring less than 6 yeas to double at 12.7%. c. Figure B correctly displays the relation between PVs of $3 future value at the interest rates 12.7% and 9.8%. d. A discount factor for 5 years at 12.7% is lower than the discount factor for 5 years at 9.8%. 4After reading the fine print in your credit card agreement, you find that the "low" interest rate is actually an 17.05% APR, or 1.4208% per month. What is the effective annual rate? a. 18.45% b. 19.41% c. 18.82% d. 19.56% 5A zero-coupon bond is a bond that pay no…1An annual percentage rate (APR) is determined by annualizing the rate using compound interest. Select one: True False 2The more frequent the compounding, the higher the future value, other things equal. Select one: True False 3Which statement is NOT true?  a. Figure A correctly displays the relation between FVs of $1 investment at the interest rates 12.7% and 9.8%. b. Investment of $1 needs more than 7 years to double its value at the rate 9.8%, while only requiring less than 6 yeas to double at 12.7%. c. Figure B correctly displays the relation between PVs of $3 future value at the interest rates 12.7% and 9.8%. d. A discount factor for 5 years at 12.7% is lower than the discount factor for 5 years at 9.8%.For compounding more frequently than annual, the effective interest rate Select one: a. is higher than the nominal rate b. is lower than the nominal rate c. depends on the amount borrowed 18 d. equal to the nominal rate