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%
Homework Answers
Answer:
Yield on three year bond = (1.5% + 5.5% + 8%) / 3 = 5%
Yield on four year bond = 1.5% + 5.5% + 8% + 3.5%) / 4 = 4.625% = 4.63%
According to expectations theory, the yield on a discount bond with a three year maturity will be 5% and yield on bond with a four year maturity will be 4.63%
Option C] 5%; 4.63%
Add Answer to:
Analysts predict that short-term interest rates over the next 4
years will be as follows: 1.5%,...
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...
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?
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...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now. False True The yield on a one-year Treasury security is 5.3800%, and the two-year Treasury security has a 8.0700% yield....
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...
estimate interest rates of the bonds
1. The one year interest rates in the future 5 years starting from 2021 are respectively, 1%, 2%, 3%, 4% and 5%. Estimate the interest rates of the following bonds issued in 2021 using expectations theory. i. Two year bond ii. Three year bond iii. Four year bond iv. Five year bondb. Draw a yield curve using above data.c. What will happen to the yield curve if you incorporate liquidity premium theory to make estimates of future interest rates?
Question Help You are given the following series of one-year interest rates 5% , 4% ,5°1.1%...
Question Help You are given the following series of one-year interest rates 5% , 4% ,5°1.1% Assuming that the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure for maturities of one to four years, and plot the resulting yield curve 7 1. Using the point drawing tool, plot the interest rate (calculated. using the data above) for each of the four terms to maturity Properly label each point according to...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? A certificate of deposit (CD) for two years will have the same yield as a CD for one year followed by an investment in another one-year CD after one year. True False The yield on a one-year Treasury security is 4.4600%, and the two-year Treasury...
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the...
Suppose that the current 1-year rate (1-year spot
rate) and expected 1-year T-bill rates over the following three
years (i.e., years 2, 3, and 4, respectively) are as follows:
1R1 = 3.18%,
E(2r1) = 4.60%,
E(3r1) = 5.10%,
E(4r1) = 6.60%
Using the unbiased expectations theory, calculate the current
(long-term) rates for one-, two-, three-, and four-year-maturity
Treasury securities. (Do not round intermediate calculations.
Round your answers to 2 decimal
places.)
Year Current (Long-Term) Rates
1 _____.__%
2 _____.__%
3...
6-6-2 Future Interest Rates Based on the pure expectations theory, if I lock in at 4%...
6-6-2 Future Interest Rates Based on the pure expectations theory, if I lock in at 4% on a two-year security, how much return do I expect on a one-year security in the third year if the other option is to lock in a yield of 3.5% for the next three years? 6-6-3 Future Interest Rates -2nd Example Suppose that you can lock into a five-year security with a yield of 4%. If the threeyear rate is 3.5%, what is the...
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 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...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now. False True The yield on a one-year Treasury security is 5.3800%, and the two-year Treasury security has a 8.0700% yield....
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...
Question Help You are given the following series of one-year interest rates 5% , 4% ,5°1.1% Assuming that the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure for maturities of one to four years, and plot the resulting yield curve 7 1. Using the point drawing tool, plot the interest rate (calculated. using the data above) for each of the four terms to maturity Properly label each point according to...
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? A certificate of deposit (CD) for two years will have the same yield as a CD for one year followed by an investment in another one-year CD after one year. True False The yield on a one-year Treasury security is 4.4600%, and the two-year Treasury...
Suppose that the current 1-year rate (1-year spot
rate) and expected 1-year T-bill rates over the following three
years (i.e., years 2, 3, and 4, respectively) are as follows:
1R1 = 3.18%,
E(2r1) = 4.60%,
E(3r1) = 5.10%,
E(4r1) = 6.60%
Using the unbiased expectations theory, calculate the current
(long-term) rates for one-, two-, three-, and four-year-maturity
Treasury securities. (Do not round intermediate calculations.
Round your answers to 2 decimal
places.)
Year Current (Long-Term) Rates
1 _____.__%
2 _____.__%
3...
6-6-2 Future Interest Rates Based on the pure expectations theory, if I lock in at 4% on a two-year security, how much return do I expect on a one-year security in the third year if the other option is to lock in a yield of 3.5% for the next three years? 6-6-3 Future Interest Rates -2nd Example Suppose that you can lock into a five-year security with a yield of 4%. If the threeyear rate is 3.5%, what is the...
Most questions answered within 3 hours.
-
At the beginning of the period, the Fabricating Department
budgeted direct labor of $136,500 and equipment...
asked 8 minutes ago -
Please answer all
____ 28. Rent control is usually
justified on the grounds that it protects...
asked 8 minutes ago -
PARTS A-D HAVE BEEN ANSWERED. WAS TOLD TO REPOST. ONLY ANSWER
PARTS E and F.
A...
asked 26 minutes ago -
2) You are given the task of finding a representation for a
circle in a drawing...
asked 1 hour ago -
STUDY QUESTION: Does use of diet drug fen-phen
(fenfluramine-phentermine) cause valvular heart disease?
HINT: Valvular heart...
asked 1 hour ago -
1. An object weighing 40 N rests on a surface. The coefficient
of friction is 0.35....
asked 2 hours ago -
Investor company owns 35% of investee company voting stock and
accounts for the investment under the...
asked 3 hours ago -
The number of major faults on a randomly chosen 1 km stretch of
highway has a...
asked 4 hours ago -
Consider the competitive environment of Starbuck's, Progressive
Insurance, a manufacturing firm with low turnover, or a...
asked 4 hours ago -
3. Gains from trade
Consider two neighbouring island countries called Euphoria and
Contente. They each have...
asked 6 hours ago -
A business executive has the option to invest money in two
plans: Plan A guarantees that...
asked 9 hours ago -
Hello, can someone please help me answer this question?
How much heat is absorbed by a...
asked 9 hours ago