Do you agree or disagree with the following statement? Explain your answer. "Assume there is no...
Do you agree or disagree with the following statement? Explain your answer. "Assume there is no liquidity premium and investors have no maturity preferences. If inflation is expected to steadily increase over the next few years and the real rate of return is expected to remain the same, the yield curve should be downward sloping." (Maximum 3 sentences, maximum 100 words.)
Homework Answers
I disagree with the statement since it is given that all the factors like real rate return, maturity preference, liquidity premium is not present or to remain constant and only change given is the future inflation rate which is going to increase then the yield curve is upward slopping and it means the long term interest rates are going to be higher than short term interest rates.
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Do you agree or disagree with the following statement? Explain
your answer. "Assume there is no...
State whether you agree or disagree with the statement below. Explain you answer. "Assuming no liquidity...
State whether you agree or disagree with the statement below. Explain you answer. "Assuming no liquidity premium, no maturity preferences, no default risk, and no changes in the expected real rate of return, an upward sloping yield curve implies that investors expect inflation to increase in the future." (Maximum 3 sentences, maximum 100 words.)
2. Which of the following statements is CORRECT? a. If the maturity risk premium (MRP) is...
2. Which of the following statements is CORRECT? a. If the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be upward sloping. b. If the maturity risk premium (MRP) equals zero, the Treasury bond yield curve must be flat. e. If inflation is expected to decrease in the future and the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be downward sloping d. If the expectations theory holds,...
The first blank options are (a downward-sloping, a humped, and an upward-sloping) 5. Drawing a yield...
The
first blank options are (a downward-sloping, a humped, and an
upward-sloping)
5. Drawing a yield curve Given the indicated maturities listed in the following table, assume the following yields for U.S. Treasury securities: Maturity (Years) Yield (%) 1 2.0 5 3.1 10 3.8 20 4.6 30 5.5 On the following graph, plot the yield curve implied by these interest rates. Place a blue point (circle symbol) at each maturity and interest rate in the table, and the yield curve...
(Ch. 4 Level of Interest Rates) State whether you agree or disagree with the following statement:...
(Ch. 4 Level of Interest Rates) State whether you agree or disagree with the following statement: “Implementing structural reforms that make it easier and less costly to open a business and in general foster a more business-friendly climate in a given country is likely to put upward pressure on real interest rates in the country in the short run, all else equal”. Explain your answer. (Maximum 3 sentences, maximum 100 words.)
The real risk-free rate, r*, is expected to remain constant at 3% per year. Inflation is expected...
The real risk-free rate, r*, is expected to remain constant at 3% per year. Inflation is expected to be 2% per year forever. Assume that the expectations theory holds; that is, there is no maturity risk premium. Treasury securities do not require any default risk or liquidity premiums. Which of the following is most correct? The Treasury yield curve is flat and all Treasury securities yield 5%. The Treasury yield curve is upward sloping for the first 10 years, and then downward sloping....
State whether you agree or disagree with the following statement. Explain why. “A stock price has...
State whether you agree or disagree with the following statement. Explain why. “A stock price has been quite volatile lately, and the market's expectation is that high volatility will continue. You, on the other hand, expect the stock's price volatility to decrease significantly in the next three months. If you are not sure of the direction of the price change, you can speculate on this expectation by selling both call and put options (not just calls or just puts) on...
To what extent do you agree or disagree with the following statement on a scale of...
To what extent do you agree or disagree with the following statement on a scale of 1 to 5 where 1 = strongly disagree and 5 = strongly agree. Please explain your answer. "As interest rates increase, bond prices decrease."
The real risk-free rate of interest, is 3%, and it is expected to remain constant over...
The real risk-free rate of interest, is 3%, and it is expected to remain constant over time. Inflation is expected to be 2% per year for the next 3 years and 4% per year for the next 5 years. The maturity risk premium is equal to 0.1 x (t-1) %, where t = the bond’s maturity. The default risk premium for a BBB-rated bond is 1.3%. a- What is the average expected inflation rate over the next 4 years? b-What...
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...
1. 1 in Nation is expected to be relatively low, then Interest rates will tend to...
1. 1 in Nation is expected to be relatively low, then Interest rates will tend to be relatively high, other things held constant 2. True b. False 2. Which of the following statements is CORRECT? 2. If the maturity risk premium (MRP) is greater than rero, the Treasury bond yield curve must be upward sloping b. If the maturity risk premium (MRP) equals zero, the Treasury bond yield curve must be flat. c. If inflation is expected to decrease in...
2. Which of the following statements is CORRECT? a. If the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be upward sloping. b. If the maturity risk premium (MRP) equals zero, the Treasury bond yield curve must be flat. e. If inflation is expected to decrease in the future and the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be downward sloping d. If the expectations theory holds,...
The
first blank options are (a downward-sloping, a humped, and an
upward-sloping)
5. Drawing a yield curve Given the indicated maturities listed in the following table, assume the following yields for U.S. Treasury securities: Maturity (Years) Yield (%) 1 2.0 5 3.1 10 3.8 20 4.6 30 5.5 On the following graph, plot the yield curve implied by these interest rates. Place a blue point (circle symbol) at each maturity and interest rate in the table, and the yield curve...
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...
1. 1 in Nation is expected to be relatively low, then Interest rates will tend to be relatively high, other things held constant 2. True b. False 2. Which of the following statements is CORRECT? 2. If the maturity risk premium (MRP) is greater than rero, the Treasury bond yield curve must be upward sloping b. If the maturity risk premium (MRP) equals zero, the Treasury bond yield curve must be flat. c. If inflation is expected to decrease in...
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