EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 15, Problem 8CP
Summary Introduction
To describe: The shape of the treasury yield curve throughout three year benchmark and to analyze the term structure theory which supports the shape of U.S treasury yield drawn.
Introduction:
The liquidity preference theory is a model which tells that an investor should demand higher interest rate or premium on securities. In this these securities have long term maturity with greater risk because all factors are equal. In the liquidity preference theory investor usually prefer cash as liquidity.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Please correctly explain
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
E(21)
1.25%
2.40%
L2= 0.04%
E(31) = 2.50%
E(41) = 2.80%
L3= 0.08%
L4=
0.10%
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)
Years
Rates
1
%
2
%
3
%
4
%
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
=
2.00
%
E(2r1)
=
2.90
%
L2
=
0.06
%
E(3r1)
=
3.30
%
L3
=
0.08
%
E(4r1)
=
3.75
%
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.)
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
=
2.00
%
E(2r1)
=
2.90
%
L2
=
0.06
%
E(3r1)
=
3.30
%
L3
=
0.08
%
E(4r1)
=
3.75
%
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.)
Years
Current (Long-term) Rates
1
%
2
%
3
%
4
%
Chapter 15 Solutions
EBK INVESTMENTS
Ch. 15 - Prob. 1PSCh. 15 - Prob. 2PSCh. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Prob. 6PSCh. 15 - Prob. 7PSCh. 15 - Prob. 8PSCh. 15 - Prob. 9PSCh. 15 - Prob. 10PS
Ch. 15 - Prob. 11PSCh. 15 - Prob. 12PSCh. 15 - Prob. 13PSCh. 15 - Prob. 14PSCh. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Prob. 17PSCh. 15 - Prob. 18PSCh. 15 - Prob. 19PSCh. 15 - Prob. 1CPCh. 15 - Prob. 2CPCh. 15 - Prob. 3CPCh. 15 - Prob. 4CPCh. 15 - Prob. 5CPCh. 15 - Prob. 6CPCh. 15 - Prob. 7CPCh. 15 - Prob. 8CPCh. 15 - Prob. 9CPCh. 15 - Prob. 10CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Based on economists forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 1R1 = 0.50% E(21) = 0.88%L2 = 0.06%E(3г 1) = 0.98%L3 = 0.13%E(4r1) = 1.28%L4 = 0.16% Calculate the yield to maturity for four yearsarrow_forwardBased 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 = 0.65% 1.75% E(271) = E(3r1) = 1.85 % E(471) = 2.15% L₂= 0.05 % L3= 0.10% L4 = 0.12 % 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). Years 1 2 3 4 Current (Long-term) Rates % % %arrow_forwardBased 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 %arrow_forward
- 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 E(2r1) E(3r1) E(4r1) 1.20% 2.35% L2 = 0.09% 2.45% L3 = 0.12% 2.75% L4= 0.14% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.)arrow_forwardBased on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 1R₁ = 5.65% E(21) 6.75% L2 = 0.05% E(31) 6.85% L3 = 0.10% E(41) 7.15% L4 = 0.12% Calculate the yield to maturity for four years. Note: Round your percentage answers to 2 decimal places (e.g., 32.16). Yield To Maturity Year 1 % Year 2 % Year 3 % Year 4 %arrow_forwardUrgently need the answer. You are paying a series of five constant-dollar (or real-dollar) uniform payments of $1,256.02 beginning at the end of first year. Assume that the general inflation rate is 15.42% and the market interest rate is 15.42% during this inflationary period.The equivalent present worth of the project is: Enter your answer as follow: 1234.56arrow_forward
- 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 % % % %arrow_forwardUse the following information about today's U.S. Treasury STRIP yield curve to answer questions 19-21. One year spot rate Two year spot rate Three year spot rate 1.95 % p.a. 2.30% p.a. 2.45% p.a. 19. What is the market consensus expectation of one year spot rates for delivery one year from now? a. 1.95% p.a. b. 2.65% p.a. c. 2.70% p.a. d. 2.30% p.a. e. 2.75% p.a. 20. What is the market consensus expectation of one year spot rates for delivery two years from now? a. 1.95% p.a. b. 2.65% p.a. c. 2.70% p.a. d. 2.30% p.a. e. 2.75% p.a. 21. How is the one year spot rate expected to change over the next year? a. An increase of 8 basis points. b. An increase of 50 basis points. c. A decrease of 5 basis points. d. An increase of 70 basis points. e. An increase of 35 basis points.arrow_forwardSuppose we have the following Treasury bill returns and inflation rates over an eight year period: Year Treasury Bills Inflation 1 10.45% 12.55% 2 11.36 16.00 3 9.06 10.29 4 8.34 7.97 5 8.88 10.29 6 11.23 12.77 7 14.11 16.98 8 15.97 16.90 a. Calculate the average return for Treasury bills and the average annual inflation rate for this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Treasury bills % Inflation % b. Calculate the standard deviation of Treasury bill returns and inflation over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Treasury bills % Inflation %…arrow_forward
- The real rate of interest is 5,20% and inflation is expected to be 3,60% for the next three years. A three-year treasury security yields 14,89%. What is the maturity risk premium for the three-year security? O 1. 6,09% O 2. 8,80% O 3. 9,69% O4. 11,29%arrow_forwardSuppose the interest rate on a one-year Treasury bill is currently 2% and investors expect that the interest rates on one-year Treasury bills over the next three years will be 3%, 5%, and 4%. The liquidity (term) premiums for one- to four-year Treasury notes are 0%, 0.25%, 0.5%, and 1.25%. Use the liquidity premium theory to calculate the current interest rate on a three-year Treasury note.arrow_forwardok 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 = 1.00% = 2.15% 2.25% = 2.55% E(21) E(31) = E(471) 42 = L3 = L4 = Using the liquidity premium theory, determine the current (long-term) rates. 0.05% 0.10% 0.12% nel plecor (in 01234 should be enteredarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
The U.S. Treasury Markets Explained | Office Hours with Gary Gensler; Author: U.S. Securities and Exchange Commission;https://www.youtube.com/watch?v=uKXZSzY2ZbA;License: Standard Youtube License