If the interest rates on one- to five-year bonds are currently 4%, 5%, 6%, 7%, and 8%, and the term premiums for one- to five-year bonds are 0%, 0.25%, 0.35%, 0.40%, and 0.50%, predict what the one-year interest rate will be two years from now.
One-year rate one year from now:
= ((1.05)^2-0.25%)/1.04-1
= 5.5769%.
One-year interest rate two years from now:
= ((1.06)^3-0.35%)/(1.04*1.057692)-1
= 7.96%
Hence, One-year interest rate two years from now is 7.96%
If the interest rates on one- to five-year bonds are currently 4%, 5%, 6%, 7%, and...
If the interest rates on one- to five-year bonds are currently 4%, 5%, 6%, 7%, and 8%, and the term premiums for one- to five-year bonds are 0%, 0.25%, 0.35%, 0.40%, and 0.50%, predict what the one-year interest rate will be two years from now.
Suppose that 1-year interest rates over next 5 years are expected to be 5%, 6%, 7%, 8% and 9%. Investor's preferences for short-term bonds and liquidity premiums for 1-year to 5-year bonds are 0%, 0.25%, 0.5%, 0.75%, and 1.0%. What is interest rate on 3-year bonds? (A) 6.0%. (B) 6.5%. (C) 6.75%. (D) 7.0%. (E) 7.25%.
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%
Question 19 (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, currently, the market expects the 1-year bond interest rate to be % two years from now. Question 20 (0.9 points) Over the next three years, the expected path of 1-year interest rates is 1, 2, and...
Compare a two-year bond with two successive one-year bonds in a situation in which an investor buys a one-year bond today and then another one-year bond when the first matures. Suppose that the two-year bond has an interest rate of 8 percent each year. Now consider the pattern of interest rates on the one-year bonds listed below and explain whether an investor should by the two-year bond or the one-year bond today, assuming that the only thing that matters to...
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...
One year interest rate is 1.58%. Two years rate is 1.68%. three years rate is 1.70%. five years rate is 1.74%. Use the pure expectations theory to find the interest rate expected on a two-year bond one year from now? If the investors attach liquidity premiums of 0.002, 0.0015 and 0.0016 to the one-, two- and three-year bonds what would be the interest rate on a two-year security?
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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?
Interest rates on 4-year Treasury securities are currently 6.8%, while 6-year Treasury securities yield 7.05%. 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.