Homework Answers
Long term; short term
The expectations hypothesis of the term structure of interest rates proposes that the long-term interest rate is determined entirely by the future as well as current short-term rates expected. This is represented by the Yield curve.
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The expectations hypothesis explains yields on securities as a function of interest rates: Multiple Choice short-term;...
A drop in interest rates: a. Affects the prices of short-term securities more than long-term securities...
A drop in interest rates: a. Affects the prices of short-term securities more than long-term securities b. Affects the prices of long-term securities more than short-term securities c. Affects the prices of both short-term securities and long-term securities the same way d. None of the above
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now. False True The yield on a one-year Treasury security is 5.3800%, and the two-year Treasury security has a 8.0700% yield....
Over the last six months, the long-term yields declined, while short-term yields remained the same. Analysts...
Over the last six months, the long-term yields declined, while short-term yields remained the same. Analysts stated that the shift was due to revised expectations of interest rates. Given the shift in the yield curve, does it appear that firms increased or decreased their demand for long-term funds over the last six months?
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? A certificate of deposit (CD) for two years will have the same yield as a CD for one year followed by an investment in another one-year CD after one year. True False The yield on a one-year Treasury security is 4.4600%, and the two-year Treasury...
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return...
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) erest Rate 1-year T-bill at beginning of year 1 1-year T-bill at beginning of year 2 1-year T-bill at beginning of year 3 1-year T-bill at beginning of year 4 - Expected Return 2-year security 5-year security 4-year...
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return...
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) Interest Rate 1-year T-bill at beginning of year 1 3 % 1-year T-bill at beginning of year 2 8 % 1-year T-bill at beginning of year 3 7 % 1-year T-bill at beginning of year 4 9 %
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return...
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) Interest Rate 1-year T-bill at beginning of year 1 4 % 1-year T-bill at beginning of year 2 7 % 1-year T-bill at beginning of year 3 6 % 1-year T-bill at beginning of year 4 9 %
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return...
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) Interest Rate 1-year T-bill at beginning of year 1 1-year T-bill at beginning of year 2 1-year T-bill at beginning of year3 1-year T-bill at beginning of year 4 5% 7% 9% 12% Expected Return 2-year security 3-year...
Over the last six months, the long-term yields declined, while short-term yields remained the same. Analysts...
Over the last six months, the long-term yields declined, while short-term yields remained the same. Analysts stated that the shift was due to revised expectations of interest rates. Given the shift in the yield curve, does it appear that firms increased or decreased their demand for long-term funds over the last six months? Look up the current yield curve from the US Treasury site and research yield curve implications for recessional or boom market climates. What do you interpret from...
If the expectations theory of the term structure of interest rates is correct, and if the...
If the expectations theory of the term structure of interest
rates is correct, and if the other term structure theories are
invalid, and we observe a downward sloping yield curve, which of
the following is a true statement? and why?
Investors expect short-term rates to be constant over time. Investors expect short-term rates to increase in the future. Investors expect short-term rates to decrease in the future. It is impossible to say unless we know whether investors require a positive...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now. False True The yield on a one-year Treasury security is 5.3800%, and the two-year Treasury security has a 8.0700% yield....
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? A certificate of deposit (CD) for two years will have the same yield as a CD for one year followed by an investment in another one-year CD after one year. True False The yield on a one-year Treasury security is 4.4600%, and the two-year Treasury...
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) erest Rate 1-year T-bill at beginning of year 1 1-year T-bill at beginning of year 2 1-year T-bill at beginning of year 3 1-year T-bill at beginning of year 4 - Expected Return 2-year security 5-year security 4-year...
Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data. (Input your answers as a percent rounded to 2 decimal places.) Interest Rate 1-year T-bill at beginning of year 1 1-year T-bill at beginning of year 2 1-year T-bill at beginning of year3 1-year T-bill at beginning of year 4 5% 7% 9% 12% Expected Return 2-year security 3-year...
If the expectations theory of the term structure of interest
rates is correct, and if the other term structure theories are
invalid, and we observe a downward sloping yield curve, which of
the following is a true statement? and why?
Investors expect short-term rates to be constant over time. Investors expect short-term rates to increase in the future. Investors expect short-term rates to decrease in the future. It is impossible to say unless we know whether investors require a positive...
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