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Term Structure of Interest Rates 6% 2.5% 1.5% Suppose that 6 months? months months months the...
Consider the following term structure of interest rates: • 6 months - 1.0% • 1 year – 1.1 % • 1.5 years - 1.4% • 2 years - 1.8% • 2.5 years - 2.4% Find the price of a 4% bond paying coupons semi-annually and that matures in 1.5 years. The bond has par (face) value of $1,000.
Consider the following term structure of interest rates: • 6 months – 1.0% • 1 year – 1.1 % • 1.5 years – 1.4% • 2 years – 1.8% • 2.5 years – 2.4% Find the price of a 4% bond paying coupons semi-annually and that matures in 1.5 years. The bond has par (face) value of $1,000.
Suppose the term structure of interest rates has these spot interest rates: r1 = 6.5%. r2 = 6.3%, r3 = 6.1%, and r4 = 5.9%. a. What will be the 1-year spot interest rate in three years if the expectations theory of term structure is correct? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) 1-year spot in 3 years % b. If investing in long-term bonds carries additional risks, then how would...
Suppose the term structure of interest rates has these spot interest rates: rı = 5.00%, r2 = 5.40%, r3 = 5.70%, r4 = 5.90% and r5 = 6.00%. a. What will be the 1-year spot interest rate in three years if the expectations theory of term structure is correct? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) 1-year spot in 3 years b. If investing in long-term bonds carries additional risks, then...
Suppose that the term structure of interest rates is flat in the UK and Australia. The UK interest rate is 0.5% per annum and the AUD rate is 1.5% per annum. The current value of the AUD is 0.59 GBP. Under the terms of a swap agreement a financial institution pays 1.3% per annum in AUD and receives 0.2% per annum in GBP. The principals in the two currencies are £ 23 million and 40 million AUD. Payments are exchanged...
2. What is an interest rate? What is the term structure of interest rates? What are some of the theories about the term structure and what do they imply about the shape of the term structure. What other things affect the different interest rates observed in the real world?
Suppose the world real interest rate is r* = 3%, the gdp growth rates in the US and the foreign country are 6%, US monetary growth is μUS = 10%, and foreign monetary growth is μFC = 50%. Find inflation rates in both countries, πUS and πFC, nominal interest rates in both countries, iUS and iFC, and the rate of change in the foreign currency value of the $, ΔE/E. Assume the money demand parameter L is constant in both...
Question 1 Eurocurrency futures are: derivatives based on foreign currency exchange rates short-term interest rate derivatives based on LIBOR or other similar rates. agreements to purchase specific foreign currencies at specific rates at specific dates in the future. derivatives based on the law of one price.
1. Explain the term structure of interest rates and the relationship measured. Why must all securities plotted on a given term structure have equal default risk? Of the 4 theories ex- plaining the shape of the yield curve which do you think is most plausible or useful? Why? 2. What is included in the closing costs of a mortgage loan? What counts as income for the bank? What is the purpose of escrow?
What is the difference between the expectations theory of the term structure of interest rates and the preferred habitat theory of interest rates?