Short-term (one-year) interest rates over the next 3 years are 3.0%, 3.5%, 4.0%. A liquidity premium...
Short-term (one-year) interest rates over the next 3 years are 3.0%, 3.5%, 4.0%. A liquidity premium of 15 basis points is required for each year of a bond’s maturity. Assume the liquidity premium theory of the term structure holds. What is the interest rate on a 3-year bond?
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Short-term (one-year) interest rates over the next 3 years are
3.0%, 3.5%, 4.0%. A liquidity premium...
Analysts predict that short-term interest rates over the next 4 years will be as follows: 1.5%,...
Analysts predict that short-term interest rates over the next 4 years will be as follows: 1.5%, 5.5%, 8%, and 3.5%, respectively. According to expectations theory, the yield on a discount bond with a three year maturity will be ____ and yield on bond with a four year maturity will be ____. Group of answer choices 5.5%; 4.63% 5.5%; 4.25% 5%; 4.63% 5%; 4.25%
Write down an equation representing the liquidity premium theory of the term structure of interest rates....
Write down an equation representing the liquidity premium theory of the term structure of interest rates. Based on this theory, explain how the yields on short-term and medium-term government bonds are related.
Question 22 (0.9 points) Over the next three years, the expected path of 1-year interest rates...
Question 22 (0.9 points) Over the next three years, the expected path of 1-year interest rates is 1, 2, and 1 percent, and the 1-year, 2-year, and 3-year term premia are 0, 0.2, and 0.5 percent, respectively. Using the information, if the expectations theory of the term structure is true, then the current interest rate on 2-year bond must be % (round to one decimal place x.x). Question 23 (0.9 points) Over the next three years, the expected path of...
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.
An economist expects short-term rates to remain unchanged over the next several years. The economist would...
An economist expects short-term rates to remain unchanged over the next several years. The economist would most likely predict an upward sloping yield curve if he believes which term structure theory applies? a) Local expectations theory. b) Liquidity preference theory. c) Unbiased expectations theory. ОА OB OC QUESTION 41 If the spot rate curve is upward sloping, then: a) The forward curve lies above the spot curve and the yield to maturity will be lower than the spot rate with...
Question 5 (0.9 points) Situation 6-2 The current 1-year, 2-year, and 3-year bond interest rates are...
Question 5 (0.9 points) Situation 6-2 The current 1-year, 2-year, and 3-year bond interest rates are 4%, 5%, and 6%, respectively. The 1-year, 2-year, and 3-year term premia are estimated to be 0, 1, and 2 percent, respectively. Using the information in Situation 6-2, the expectations theory of the term structure predicts that the expected 1-year bond interest rate is % two years from now. Question 6 (0.9 points) Over the next three years, the expected path of 1-year interest...
The relationship between interest rates and bond maturity is called: A) Liquidity premium B) Yield to...
The relationship between interest rates and bond maturity is called: A) Liquidity premium B) Yield to maturity C) Term structure of interest rates D) Maturity risk E) Inflation premium 2.
10. It is assumed that one-year interest rates on bonds over next five years are 6.5%,...
10. It is assumed that one-year interest rates on bonds over next five years are 6.5%, 6.75%, 7.25%, 8.50% and 9.25% and liquidity premium from one-year to five-year on bonds are 0%, 0.125% 0.25% 0.375% and 0.50%. What is the yield on 5-year bonds according to the liquidity premium theory? (A) 8.50% (B) 8.15% (C) 7.65%. (D) 6.75%. (E) 6.50%
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...
Question 22 (0.9 points) Over the next three years, the expected path of 1-year interest rates is 1, 2, and 1 percent, and the 1-year, 2-year, and 3-year term premia are 0, 0.2, and 0.5 percent, respectively. Using the information, if the expectations theory of the term structure is true, then the current interest rate on 2-year bond must be % (round to one decimal place x.x). Question 23 (0.9 points) Over the next three years, the expected path of...
An economist expects short-term rates to remain unchanged over the next several years. The economist would most likely predict an upward sloping yield curve if he believes which term structure theory applies? a) Local expectations theory. b) Liquidity preference theory. c) Unbiased expectations theory. ОА OB OC QUESTION 41 If the spot rate curve is upward sloping, then: a) The forward curve lies above the spot curve and the yield to maturity will be lower than the spot rate with...
Question 5 (0.9 points) Situation 6-2 The current 1-year, 2-year, and 3-year bond interest rates are 4%, 5%, and 6%, respectively. The 1-year, 2-year, and 3-year term premia are estimated to be 0, 1, and 2 percent, respectively. Using the information in Situation 6-2, the expectations theory of the term structure predicts that the expected 1-year bond interest rate is % two years from now. Question 6 (0.9 points) Over the next three years, the expected path of 1-year interest...
The relationship between interest rates and bond maturity is called: A) Liquidity premium B) Yield to maturity C) Term structure of interest rates D) Maturity risk E) Inflation premium 2.
10. It is assumed that one-year interest rates on bonds over next five years are 6.5%, 6.75%, 7.25%, 8.50% and 9.25% and liquidity premium from one-year to five-year on bonds are 0%, 0.125% 0.25% 0.375% and 0.50%. What is the yield on 5-year bonds according to the liquidity premium theory? (A) 8.50% (B) 8.15% (C) 7.65%. (D) 6.75%. (E) 6.50%
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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