Suppose government economists have forecasted one-year T-bill rates for the following two years. They are as follows: Year 1-year rate 1 4.50% 2 5.00% At what annual required rate of interest, bond investors would be willing to purchase a 2-year T-bond now? 9.725% or higher. 4.75% or higher. 4.875 or lower. 9.50% or lower.

Suppose government economists have forecasted one-year T-bill rates for the following two years. They are as follows: Year 1-year rate 1 4.50% 2 5.00% At what annual required rate of interest, bond investors would be willing to purchase a 2-year T-bond now? 9.725% or higher. 4.75% or higher. 4.875 or lower. 9.50% or lower.

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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Suppose the interest rate on a 1-year government bond is 3.00%, on a 4-year government bond is 3.50% and that on a 6-year government bond is 4.90%. What is the market's forecast for 2-year rates 4 years from now, assuming the pure expectations theory is correct? Show your work.
A 10-year government bond has face value of OR 200 and a coupon rate of 6% paid semiannually. Assume that the interest rate is equal to 8% per year. What is the bond’s price? What is the reason for the difference in price on an annual and semiannually basis? Discuss the role of financial managers.
We observe the following treasury yields on a particular day: one-year 1.50%, two-year 2.25%, and three year 3.25%. If two-year term premium is 0.25%, on that day what did investors expect one-year interest rate to be next year?Group of answer choices a)1.875% b)2.5% c)2.375% d)2.25%
Suppose a State of Califomla bond will pay 1,000 eight years from now. If the going interest rate on these 8 year bonds is 6.0% how much is the bond worth today?
Consider a bond with a duration of 8.8 years priced at $1,100. If market interest rates were to increase by 0.25%, what would be the predicted new bond price according to duration?
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: Using the liquidity premium theory, what is the current rate on a four- year Treasury security? R1 = 6.65% E(r₂) 7.75% L2 = 0.10% E(r3) = 7.85% L3 0.20% E(r4) = 8.15% L4 = 0.25% Multiple Choice O 7.736 percent 7.600 percent 7.738 percent 8.400 percent
Assume that one-year T bill rates are expected to rise by 150 basis points per year over the next six years. Further assume that expectation theory prevails. Compute the required interest rate on a six-year T-bond when the current one-year interest rate is 2.5%. 5.5% a 6.25% b 7.75% c 8.25% d None of the above.
Suppose 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.
Suppose that a 30-year government bond has a maturity value of $1000 and a coupon rate of 5%, with coupons paid semiannually. Find the market price of the bond if the yield rate is 4% compounded semiannually. (Round your answer to the nearest cent.)
You will receive $100 from a savings bond in 3 years. The nominal interest rate is 8%. a. What is the present value of the proceeds from the bond? b. If the inflation rate over the next few years is expected to be 3%, what will the real value of the $100 payoff be in terms of today's dollars? C. What is the real interest rate? d. Show that the real payoff from the bond [from part (b)] discounted at the real interest rate [from part (c)] gives the same present value for the bond as you found in part (a).
Suppose a pure discount State of New York bond will pay $1,000 ten years from now. If the going interest rate on these 10-year bonds is 3.5%, how much is the bond worth today?
Suppose that discount bond prices are as follows: 2 3 4 P. 0.9525 0.899 0.838 0.760 0.05 0.065 0.054 0.070 A customer would like to have a forward contract to borrow $20M two years from now for one vear. Can you (a bank) quote a rate for this forwardloan? Question 15 Your investment account earned 10.8% last year, inflation was 6.0% for last year. What was the real return on your account last year?

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