Based on Expectations hypothesis,
(1 + 2 Yr Yield)2 = (1 + 1 Yr Yield) * (1 + 1 Yr Yield 1 Yr from now)
(1 + 3%)2 = (1 + 2%) * (1 + 1 Yr Yield 1 Yr from now)
1.0609 = 1.02 * (1 + 1 Yr Yield 1 Yr from now)
(1 + 1 Yr Yield 1 Yr from now) = 1.040098
1 Yr Yield 1 Yr from now = 0.040098
1 Yr Yield 1 Yr from = 4.00%
Please explain how it is 4% Suppose 1 year and 2 year bond yields currently are...
5. Assume the following interest rates Current Rate on a 1-year bond due in 2019: 4% Expected Rate on a 1-year bond due in 2020: 5% Expected Rate on a 1-year bond due in 2021: 6% Expected Rate on a 1-year bond due in 2022: 4% Expected Rate on a 1-year bond due in 2023: 2% a. According to the expectations theory for the yield curve, what would be the current rate on a 3-year bond due in 2021? Show...
21. Consider the following T-Bond yields: T-Bond Years to Maturity Average Yield per Year 6% 7% What is the 1-year implied forward rate two years from now (i.e. the one year rate that is expected to prevail two years from now) according to pure expectations theory? GIPage 151
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.34, while a 2-year zero sells at $81.43. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 16% per year. a. What is the yield to maturity of the 2-year zero?(Do not round intermediate calculations. Round your answers to 3 decimal places.) b. What is the yield to maturity of...
Suppose the yields on one-year government bonds are as follows: spot = .015; 1-year forward = .025; 2-year forward = .035. According to the expectations theory, what is the approximate (spot) yield on a 3-year government bond?
6. Suppose that 1-year bonds currently offer a nominal yield to maturity of 4% (110 = 0.04), otherwise comparable 2-year bonds currently offer a yield to maturity of 3% (120 = 0.03), and 3 year bonds currently offer a yield to maturity of 2.5% (13,0 = 0.025). a. Draw the yield curve. b. Based on the Expectations Theory of Term Structure, what do investors expect the yield to be on 1 year bonds next year (i.e. - what is i11)?...
15.3 Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity YTM(%) A 1 5.7 % B 2 6.7 C 3 7.2 D 4 7.7 According to the expectations hypothesis, what is the market’s expectation of the yield curve one year from now? Specifically, what are the expected values of next year’s yields on bonds with maturities of (a) one year? (b) two years? (c) three years? (Do not round intermediate calculations. Round your answers to 2 decimal...
The yield on a one year bond is 3%. The expected yield for the one year bond a year later is 4%. The expected yield for the one year bond in 2 years is 5%. According to the expectations hypothesis, the yield on a three year bond should be OA. 3% B. 4% ОС. 5% D. None of the above
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $88.99, while a 2-year zero sells at $76.99. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 16% per year. a. What is the yield to maturity of the 2-year zero?(Do not round intermediate calculations. Round your answers to 3 decimal places.) Yield to Maturity 2-year zero 10 b. What...
Suppose the yield to maturity on a two year bond is currently (3/2020) 3.2%, the current (3/2020) yield to maturity on a one year bond is 2.1%, and the term premium on a two year bond is .75%. Then, according to the liquidity premium hypothesis, the yield to maturity on a bond that matures in one year that is expected next year (3/2021) is ____%.
Suppose the liquidity premium on a two year bond is currently (3/2019) .8%, the current (3/2019) yield to maturity on a one year bond is 2.53%, and the yield curve is flat. Then, according to the liquidity premium hypothesis, the yield to maturity on a bond that matures in one year that is expected next year (3/2020) is ____%.