Question

Assume that as of today, the annualized interest rate for a twelve-year bond is 8 percent. Today’s annualized interest rate for a five-year bond is 6 percent. The annualized interest rate for a four-year bond expected in five years is 5 percent. Use only this information to estimate the annualized interest rate for a three-year bond expected in nine years. The interest rate for a twelve-year bond has a .10% liquidity premium. Use the geometric average method.

Answer #1

**ANSWER IN THE IMAGE((YELLOW HIGHLIGHTED). FEEL FREE TO
ASK ANY DOUBTS. THUMBS UP PLEASE.**

Assume that as of today, the annualized interest rate for a
seven-year bond is 10 percent, while the annualized interest rate
for a three-year bond is 7 percent. Use only this information to
estimate the annualized interest rate for a four-year bond expected
in three years. Use the geometric average method.

Suppose that:
1) The interest rate on a one-year bond today is 3%;
2) The interest rate on a one-year bond starting one year from
now is expected to be 4% per year;
3) The interest rate on a one-year bond starting two years from
now is expected to be 5% per year;
4) The risk premium on a two-year bond is 0.5%; and
5) The risk premium on a three-year bond is 1%.
Use that information to answer the...

If the interest rate on a one-year bond selling today is 2%, the
expected interest rate on a one-year bond one year from today is
5%, and the liquidity premium is zero, what does expectations
theory imply that the interest rate on a two-year bond selling
today would be?
What does this do to the price of one-year bonds?
What does this do to the yield on one -year bonds?

Assume the following information. • Interest rate on borrowed
euros is 5 percent annualized. • Interest rate on dollars loaned
out is 6 percent annualized. • Spot rate is 1.10 euros per dollar
(one euro = $0.909). • Expected spot rate in five days is 1.15
euros per dollar. • Fabrizio Bank can borrow 10 million
euros.
If Fabrizio Bank attempts to capitalize on the above information,
its profit over the five-day period is
please show steps. thanks

The table below shows current and expected future one-year
interest rates. Year One-Year Bond Rate 1= 3% 2= 4% 3.=5% 4.= 8% A.
Assuming that the expectations theory is the correct theory of the
term structure, calculate the current interest rate for a four-year
bond (predicted by that theory). Show your work and include a
one-sentence explanation. B. Assume now that the liquidity premium
theory is the correct theory of the term structure. If the actual
interest rate on a...

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?

. Suppose that the one-year interest rate over the
next four years is expected to be 2%, 3%, 4% and 6%.
a) Find the interest rate on a three- year bond.
b) Find the interest rate on a four-year bond
c) Find the interest rate on a four -year bond when the
liquidity premium of the investor to
hold a four-year bond is 2%.

4.
A thirty-year U.S. Treasury bond has a 4.0 percent interest rate.
In contrast, a ten-year Treasury bond has an interest rate of 3.7
percent. If inflation is expected to average 1.5 percentage points
over both the next ten years and thirty years, determine the
maturity risk premium for the thirty-year bond over the ten-year
bond.

A 6-year Treasury bond has an interest rate of 8.5 percent.
Inflation is expected to be 5 percent each of the next three years
and 6 percent each year after the third year. The maturity risk
premium is estimated to be 0.1%(t-1), where t is equal to the
maturity of the bond. The real risk-free rate is assumed to be
constant over time. What is the real risk-free rate of
interest?

According to the liquidity premium theory of the term structure
of interest rates, if the one-year bond rate is expected to be
3%, 6%, and 9% over each of the next three years, and if the
liquidity premium on a three-year bond is 3%, then the interest
rate on a three-year bond is _?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 33 minutes ago

asked 49 minutes ago

asked 59 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago