4. (a) Treasury bond markets in New Zealand and the U.S. are dealer mar- kets. What are the pros and cons of this market structure as com- pared to trading securities on an exchange? (b) The Reserve Bank of New Zealand reports the following (annually compounded) treasury bond spot rates (as of 26 July 2022). Maturity 1 year 2 years 5 years 10 years Rate 3.38 3.53 3.53 3.60 Can we conclude that the market is expecting short term interest rates to rise over the next 10 years? Discuss. (c) You are in the United States. You decide that the market has under- estimated the yield on long term Treasury bonds. You observe the following bond: Maturity 15 May 2052 Coupon 2.875 Price 97.1340 Yield 3.007
4. (a) Treasury bond markets in New Zealand and the U.S. are dealer mar- kets. What are the pros and cons of this market structure as com- pared to trading securities on an exchange? (b) The Reserve Bank of New Zealand reports the following (annually compounded) treasury bond spot rates (as of 26 July 2022). Maturity 1 year 2 years 5 years 10 years Rate 3.38 3.53 3.53 3.60 Can we conclude that the market is expecting short term interest rates to rise over the next 10 years? Discuss. (c) You are in the United States. You decide that the market has under- estimated the yield on long term Treasury bonds. You observe the following bond: Maturity 15 May 2052 Coupon 2.875 Price 97.1340 Yield 3.007
Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates
Section: Chapter Questions
Problem 1IEE
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