Showing 331 to 340 of 5586 Questions

A company’s 5year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real riskfree rate (r*) is 2.3%. The average inflation premium is 2.5%; and the maturity risk premium is estimated to be 0.1 $ (t = 1)%, where t " number of years to maturity. If the liquidity premium is 1%, w
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An investor in Treasury securities expects inflation to be 2.5% in Year 1, 3.2% in Year 2, and 3.6% each year thereafter. Assume that the real riskfree rate is 2.75% and that this rate will remain constant. Threeyear Treasury securities yield 6.25%, while 5year Treasury securities yield 6.80%. What is the difference in the maturity ris
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The real riskfree rate, r*, is 2.5%. Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturity risk premium. An 8year corporate bond has a yield of 8.3%, which includes a liquidity premium of 0.75%. What is its default risk premium?
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Suppose 2year Treasury bonds yield 4.5%, while 1year bonds yield 3%. r* is 1%, and the maturity risk premium is zero. a. Using the expectations theory, what is the yield on a 1year bond 1 year from now?b. What is the expected inflation rate in Year 1? Year 2?
1358 
Assume that the real riskfree rate is 2% and that the maturity risk premium is zero. If the 1year bond yield is 5% and a 2year bond (of similar risk) yields 7%, what is the 1year interest rate that is expected for Year 2? What inflation rate is expected during Year 2? Comment on why the average interest rate during the 2year period d
1278 
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 crossproduct between the real rate and inflation. A 6year security with no maturity, default, or liquidity risk has a yield of 20.84%. If the real riskfree rate is 6%, what average
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A 5year Treasury bond has a 5.2% yield. A 10year Treasury bond yields 6.4%, and a 10year corporate bond yields 8.4%. The market expects that inflation will average 2.5% over the next 10 years (IP10 = 2.5%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real riskfree rate, r*, will remain constant over the
1246 
Suppose the inflation rate is expected to be 7% next year, 5% the following year, and 3% thereafter. Assume that the real riskfree rate, r*, will remain at 2% and that maturity risk premiums on Treasury securities rise from zero on very shortterm bonds (those that mature in a few days) to 0.2% for 1year securities. Furthermore, maturit
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In late 1980, the U.S. Commerce Department released new data showing inflation was 15%. At the time, the prime rate of interest was 21%, a record high. However, many investors expected the new Reagan administration to be more effective in controlling inflation than the Carter administration had been. Moreover, many observers believed that
14395 
a. What effect would each of the following events likely have on the level of nominal interest rates?(1) Households dramatically increase their savings rate.(2) Corporations increase their demand for funds following an increase in investment opportunities.(3) The government runs a largerthanexpected budget deficit.(4) There is an increa
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