Question

Yield Curves Suppose the inflation rate is expected to be 6.9% next year, 4.75% the following year, and 3.95% thereafter. Assume that the real risk-free rate, r, will remain at 1.55% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities, Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. a. Calculate the interest rate on 1-year Treasury securities. Round your answer to two decimal places Calculate the interest rate on 2-year Treasury securities. Round your answer to two decimal places Calculate the interest rate on 3-year Treasury securities. Round your answer to two decimal places Calculate the interest rate on 4-year Treasury securities. Round your answer to two decimal places Calculate the interest rate on 5-year Treasury securities. Round your answer to two decimal places Calculate the interest rate on 10-year Treasury securities. Round your answer to two decimal places

Answer 1

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BOND- Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum Cut AC Wrap Text Calibri 11 General ECopy Fill Merge & Center Paste в IU* +.0 .00 .00 0 Conditional Format Cell Insert Delete Format Sort & Find & Filter Select % Format Painter Clear Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox GB59 FX FY FZ GA GB GC GD GE GF GG GH GI GJ G A 44 45 46 47 r =rIPMRP YEAR r* MRP AVERAGE INFLATION PER YEAR (IP) 48 INFLATION IP 6.90% 1.55% 0.20% 6.90% 6.9000% 8.65% 49 1 0.40% (6.90% 4.75%)/2 = 7.78% 4.75% 1.55% 5.8250% 50 2 3.95% 1.55% 0.60% (6.90% +4.75% +3.95%)/3 = 0.80% (6.90% +4.75% + 2(3.95%))/4 = 1.00% (6.90% +4.75% +3(3.95%))/5 = 1.00% (6.90% +4.75% 8(3.95%))/10 5.2000% 7.35% 51 1.55% 3.95% 4.8875% 7.24%< 52 ANSWERS < 1.55% 7.25% 3.95% 4.7000% 53 5 4.3250% 3.95% 1.55% 6.88% 54 10 55 56 57 58 59 60 61 62 63 64 S5 S6 L 120% Sheet2 NOTE S1S3 AFN S10 EUAC AW LIFE YIELD SPOT WARRANT refund S4 BANKING CLEAN PRICE BIDDING, UNDERWRITING LP, IP, MRP, INFLATION Rea erences WA 04:14 TENG 30-10-2019