maturity | yield |
1 year | 1.25% |
2 | 1.35 |
3 | 1.50 |
4 | 1.70 |
5 | 1.95 |
6 | 2.25 |
8 | 2.95 |
10 | 3.95 |
If pure expectations hypothesis holds, what will interest rate on 2 year securities be 6 years from now?
2-year rate, 6 years from now = [(1 + 8-year rate)8 / (1 - 6-year rate)6]1/2 - 1
= [(1 + 0.0295)8 / (1 + 0.0225)6]1/2 - 1
= [1.2619 / 1.1428]1/2 - 1
= [1.1042]1/2 - 1
= 1.0508 - 1 = 0.0508, or 5.08%
You can observe the following Treasury yields: Maturity Yield 1 year 2.8% 2 years 3.2 3 years 3.7 4 years 4.5 5 years 4.6 6 years 5.0 If the pure expectations theory holds, what does the market expect will be the interest rate on two-year securities, four years from now?
6-8 5-9 Expected on page 206.) EXPECTATIONS THEORY One-year Treasury securities yield 4.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 5.2%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. EXPECTATIONS THEORY Interest rates on 4-year Treasury securities are currently 6.7%, while 6-year Treasury securities yield 7.25%. If the pure expectations theory is correct, what does the market believe that...
2. EXPECTED INTEREST RATE The real risk-free rate is 3 %. Inflation is expected to be 2 % this year and 4 % during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3 -year Treasury securities?3. MATURITY RISK PREMIUM The real risk-free rate is 3 %, and inflation is expected to be 3 % for the next 2 years. A 2-year Treasury security...
One-year Treasury securities yield 6%. The market anticipates that 1-year from now 1-year Treasury securities will yield 7.5%. If the pure expectations theory is correct, what should be the yield today for 2-year Treasury securities? The real risk-free rate of interest is 1.7%. Inflation is expected to be 5% this year and 6% during the next 2 years. Assume that the maturity risk premiums is zero. What is the yield on 1-year treasury securities? Suppose you and other investors expect...
help with 15, 16, 17
15. Suppose the interest rate (return rate) on a 1-year T-bond is 3.0% and that on a 2-year T-bond is 6.0%. Assuming the pure expectations theory is correct, what is the market's forecast for 1-year rates 1 year from now? 16. Stacker's Corporation's bonds have a 10-year maturity, a 10.00% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 2.00%, based on semiannual compounding. What is the bond's price? 17....
The yield on 1-year Treasury securities is 6%, 2-year securities yield 6.2%, 3-year securities yield 6.3%, and 4-year securities yield 6.5%. There is no maturity risk premium. Using expectations theory and geometric averages, forecast the yields on the following securities: A 1-year security, 1 year from now? A 1-year security, 2 years from now? A 2-year security, 1 year from now? A 3-year security, 1 year from now?
The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75% for the next 2 years. A 2-year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security? 65 6-6 INFLATION CROSS-PRODUCT An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free...
16. Suppose we observe the following rates: Maturity Yield If the pure expectations theory of the term structure of interest rates holds, what is the one- year interest rate expected two years from now? One year Two year 696 65% Three year l 7%
Interest rates on 4-year Treasury securities are currently 5.2%, while 6-year Treasury securities yield 7.3%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now?
1- Interest rates on 4-year Treasury securities are currently 6.9%, while 6-year Treasury securities yield 7.35%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. 2- A Treasury bond that matures in 10 years has a yield of 5.25%. A 10-year corporate bond has a yield of 7.25%....