Question

In April 2019, the nominal interest rate on the one-year
Treasury bill was 2.34%. From April 2019 to April 2020, the
consumer price index rose from 254.9 to 255.9. If you bought the
one-year Treasury bill in April 2019, the interest rate you earned
over the following 12-month period was X%. *(Enter your answer
rounded to two decimal places and include a minus sign if
necessary.)*

Answer #1

As per the information provided in the question

The nominal interest rate on one year treasury bill was (i)=2.34%=0.0234

The CPI increased from period (April 2019 to April 2020) is 254.9 to 255.9

So the rate of inflation (f)={(CPIn+1 –CPIn)/CPIn}x100 = {(255.9 – 254.9)/254.9}x100=0.3923% =0.003923

Real interest rate (r) = (i-f)/(1+f) = (0.0234-0.003923)/(1+0.003923) = 0.019477/1.003923=0.01940089

Real interest rate (r)= 1.940089% or Approx 1.94% (Answered to 2 decimal place)

The interest rate earned over the 12 month period is 1.94%

Suppose that the interest rate on a one-year Treasury bill is
currently 7% and that investors expect that the interest rates on
one-year Treasury bills over the next three years will be 8%, 9%,
and 7%. Use the expectations theory to calculate the current
interest rates on two-year, three-year, and four-year Treasury
notes. The current interest rate on two-year Treasury notes
is______%.
(Round your response to two decimal places.)The
current interest rate on three-year Treasury notes is
______%.
(Round your...

Assume that the interest rate on a one-year treasury bill is 3%
and that of a one year Eurobond is 1.5%. Also assume that CIP holds
in the Forex. If the spot exchange rate is $1.0832 and the forward
exchange rate is 1.1075 where will investors invest their money?
Also compute the covered interest differential.

Suppose 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...

3. Assume that the interest rate on a one-year treasury bill is
3% and that of a one year Eurobond is 1.5%. Also assume that CIP
holds in the Forex. If the spot exchange rate is $1.0832 and the
forward exchange rate is 1.1075 where will investors invest their
money? Also compute the covered interest differential.

Suppose the one year nominal interest rate is 3 percent and that
the expected inflation is equal to 4 percent. The price index over
this one year period went from 218 to 223. Compare the ex-ante real
rate of interest to the ex-post real rate of interest. Which real
rate of interest would you more likely be willing to spend today
and which real rate of interest would you more likely be willing to
save and why?

Assume these are the stock market
and Treasury bill returns for a 5-year period:
Year
Stock Market Return
T-Bill Return
Year 1
?
33.03
5.00
Year 2
32.60
1.30
Year 3
13.66
.31
Year 4
4.88
.08
Year 5
20.66
.10
a.
What was the risk premium on common stock in each year?
(Negative amounts should be indicated by a minus sign. Do
not round intermediate calculations. Enter your answers as a
percent rounded to 2 decimal places.)
Year
Risk...

You bought a 1‐year $10,000 Treasury bill for $9,090 and held
it until maturity. The inflation was 5%.
What was your real rate of return?
If interest income is subject to 12% income tax, what will be
your real rate of return after taxes?

The spot rate for the Danish Krone was $0.1745/DK on April 20,
2019. Today is October 20, 2019 and the spot rate is $0.1675/DK
a: What was the rate of appreciation or
depreciation of the Danish Krone over the six month period from
April?
b: If the one-year inflation rate in the US is
expected to be 2.0% p.a. (per annum) and 4% p.a. in Denmark, what
is the purchasing power parity rate expected on April 20, 2020?
c. Did...

Liquidity Premium Hypothesis One-year Treasury bills currently
earn 2.50 percent. You expected that one year from now, one-year
Treasury bill rates will increase to 2.75 percent. The liquidity
premium on two-year securities is 0.15 percent. If the liquidity
theory is correct, what should the current rate be on two-year
Treasury securities?
1R2 =
[(1 + Real interest rate)(1 + Year 2 Rate + Liquidity risk
premium)] 1/2 – 1

"One-year Treasury bills currently earn 2.90 percent. You expect
that one year from now, one-year Treasury bill rates will increase
to 3.35 percent. The liquidity premium on two-year securities is
0.085 percent. If the liquidity theory is correct, what should the
current rate be on two-year Treasury securities (Round the
percentage answer to 2 decimal places)?"
3.12%
3.13%
Not possible to compute with the data provided
2.11%
3.17%

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