Question

**Determinants of Interest Rate for Individual
Securities** *The Wall Street Journal* reports that
the rate on 3-year Treasury securities is 7.90 percent, and the
6-year Treasury rate is 8.15 percent. From discussions with your
broker, you have determined that expected inflation premium is 3.40
percent next year, 3.65 percent in Year 2, and 3.85 percent in Year
3 and beyond. Further, you expect that real interest rates will be
3.95 percent annually for the foreseeable future. What is the
maturity risk premium on the 6-year Treasury security?

Answer #1

Determinants of Interest Rates for Individual Securities The
Wall Street Journal reports that the current rate on 10-year
Treasury bonds is 3.25 percent and on 20-year Treasury bonds is
5.50 percent. Assume that the maturity risk premium is zero.
Calculate the expected rate on a 10-year Treasury bond purchased
ten years from today, E(10r10).

The Wall Street Journal reports that the rate on three-year
Treasury securities is 2.53 percent and the rate on four-year
Treasury securities is 2.74 percent. The one-year interest rate
expected in three years, E(4r1), is 3.22 percent. According to the
liquidity premium hypotheses, what is the liquidity premium on the
four-year Treasury security, L4?

The Wall Street Journal reports that the rate on 9-year Treasury
securities is 6.85 percent and the rate on 10-year Treasury
securities is 7.15 percent. The 1-year risk-free rate expected in
nine years is, E(10r1), is 7.75 percent. According to the liquidity
premium hypotheses, what is the liquidity premium on the 10-year
Treasury security, L10? (Do not round intermediate calculations.
Round your final answer to 2 decimal places.)

The Wall Street Journal reports that the rate on 5-year
Treasury securities is 1.80 percent and the rate on 6-year Treasury
securities is 2.35 percent. According to the unbiased expectations
theories, what does the market expect the 1-year Treasury rate to
be five years from today,
E(6r1)?
What is the treasury rate Percentage %

Determinants of Interest Rate for Individual
Securities You are considering an investment in 30-year
bonds issued by a corporation. The bonds have no special covenants.
The Wall Street Journal reports that 1-year T-bills are
currently earning 3.80 percent. Your broker has determined the
following information about economic activity and the corporation
bonds:
Real interest rate = 3.15%
Default risk premium = 3.05%
Liquidity risk premium = 1.35%
Maturity risk premium = 2.80%
What is the inflation premium? What is the...

eterminants of Interest Rate for Individual
Securities You are considering an investment in 30-year
bonds issued by a corporation. The bonds have no special covenants.
The Wall Street Journal reports that 1-year T-bills are
currently earning 3.80 percent. Your broker has determined the
following information about economic activity and the corporation
bonds:
Real interest rate = 3.40%
Default risk premium = 3.55%
Liquidity risk premium = 1.60%
Maturity risk premium = 3.30%

The Wall Street Journal reports that the current rate on 5-year
Treasury bonds is 2.60 percent and on 10-year Treasury bonds is
4.85 percent. Assume that the maturity risk premium is zero.
Calculate the expected rate on a 5-year Treasury bond purchased
five years from today, E(5r5). (Do not round intermediate
calculations and round your answer to 2 decimal places.)
Expected rate %

You read in The Wall Street Journal that 30-day T-bills
are currently yielding 4.5%. Your brother-in-law, a broker at Safe
and Sound Securities, has given you the following estimates of
current interest rate premiums:
Inflation premium = 3.00%
Liquidity premium = 0.6%
Maturity risk premium = 2.00%
Default risk premium = 2.00%
On the basis of these data, what is the real risk-free rate of
return? Round your answer to two decimal places.
The real risk-free rate is 2.25%. Inflation...

A recent edition of The Wall Street Journal reported
interest rates of 2.65 percent, 3.00 percent, 3.38 percent, and
3.65 percent for three-year, four-year, five-year, and six-year
Treasury notes, respectively. According to the unbiased
expectations theory of the term structure of interest rates, what
are the expected one-year rates during years 4, 5, and 6?
(Do not round intermediate calculations. Round your answers
to 2 decimal places. (e.g., 32.16))

You read in The Wall Street Journal that 30-day T-bills
are currently yielding 4.9%. Your brother-in-law, a broker at Safe
and Sound Securities, has given you the following estimates of
current interest rate premiums:
Inflation premium = 2.50%
Liquidity premium = 0.4%
Maturity risk premium = 1.55%
Default risk premium = 2.00%
On the basis of these data, what is the real risk-free rate of
return? Round your answer to two decimal places.
%

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