Which of the following is correct? A. The maturity premiums embedded in the interest rates on...
Homework Answers
Reinvestment risk is risk arising from the fall in reinvestment rates. This risk is lesser in long-term bonds as funds are invested for longer period at an agreed rate which cannot be decreased later.
Hence, correct option is “B. Reinvestment rate is lower, other things held constant, on long term in short term bonds.”
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Which of the following is correct?
A. The maturity premiums embedded in the interest rates on...
Which of the following is correct? A. The maturity premiums embedded in the interest rates on...
Which of the following is correct? A. The maturity premiums embedded in the interest rates on us treasury securities are due primarily to the fact that the probability of default is lower on long-term bonds than on short-term goals. B. If the maturity risk premium were zero and the rate of inflation were expected to increase in the future, then the yield curve for us treasurt securities would, other things held constant, have an upward slope. C. According to the...
Which of the following statements about the term structure of interest rates is incorrect? A. According...
Which of the following statements about the term structure of interest rates is incorrect? A. According to the Liquidity Preference Theory, long-term interest rates are usually higher than short-term interest rates. B. The Market Segmentation Theory posits that bonds of different maturities are traded by different investors and their prices/yields are determined separately. C. The Pure Expectations Theory asserts that the yield curve is explained solely by investors' interest rate expectations. D. According to the Pure Expectations Theory, an upward...
According to the liquidity premium theory of interest rates, long-term spot rates are totally unrelated to...
According to the liquidity premium theory of interest rates, long-term spot rates are totally unrelated to expectations of future short-term rates. the term structure must always be upward sloping. investors prefer certain maturities and will not normally switch out of those maturities. long-term spot rates are higher than the average of current and expected future short-term rates. investors are indifferent between different maturities if the long-term spot rates are equal to the average of current and expected future short-term rates.
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...
Using the Yield Curve to Estimate Future Interest Rates You can calculate the yield curve, given...
Using the Yield Curve to Estimate Future Interest Rates You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The pure expectations shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of expectations...
Which of the following statements is true A Interest rates on bonds of different maturities tend...
Which of the following statements is true A Interest rates on bonds of different maturities tend to move together over time O B. Yield curves almost always slope downward. O c. when short-term interest rates are low. yield curves tend to be inverted. D. When short-term interest rates are high, yield curves tend to be upward sloping According to the segmented markets theory of the term structure of interest rates, if bondholders prefer short-term bonds to long-term bonds, the yield...
6.5 You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield...
6.5 You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve, you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The -Select-term structureyield curvepure expectationsCorrect 1 of Item 1 theory states that the shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis...
Nominal interest and Yield curves
5. Nominal interest rates and yield curves Economic forecasters predict that the rate of inflation will hold steady at 2% per year indefinitely. The table below shows the nominal interest rate paid on Treasury securities having different maturities.Maturity Nominal rate of return3 months 5%2 years 6 5 years 8 10 years 8.520 years 9 Approximately what real interest rate do Treasury securities offer investors at each maturity? If the nominal rate of interest paid by every Treasury security above...
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond...
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond is 8 percent, the current rate on a two-year bond is 10 percent, and the current rate on a three-year bond is 12 percent. If the expectations theory of the term structure is correct, what is the one-year interest rate expected during Year 3? (Base your answer on an arithmetic average rather than a geometri average.) 12% 16% 13% Incorrect. The yield on any...
You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve,...
You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve, you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The -Select- theory states that the shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of expectations for future interest rates and that...
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...
Using the Yield Curve to Estimate Future Interest Rates You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The pure expectations shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of expectations...
Which of the following statements is true A Interest rates on bonds of different maturities tend to move together over time O B. Yield curves almost always slope downward. O c. when short-term interest rates are low. yield curves tend to be inverted. D. When short-term interest rates are high, yield curves tend to be upward sloping According to the segmented markets theory of the term structure of interest rates, if bondholders prefer short-term bonds to long-term bonds, the yield...
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond is 8 percent, the current rate on a two-year bond is 10 percent, and the current rate on a three-year bond is 12 percent. If the expectations theory of the term structure is correct, what is the one-year interest rate expected during Year 3? (Base your answer on an arithmetic average rather than a geometri average.) 12% 16% 13% Incorrect. The yield on any...
You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve, you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The -Select- theory states that the shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of expectations for future interest rates and that...
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