Assume semi-annual rates. 2-year rates are 4% and 10-year rates are 6%. You believe that interest...
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Assume semi-annual rates. 2-year rates are 4% and 10-year rates are 6%. You believe that interest rates for for 8 years beginning in 2 years will be 7%. What should you do? You think rates are going up. Should you buy a floating rate note, a 5-year fixed rate bond or a 10-year fixed rate bond? Does the shape of the yield curve affect your decision? You think rates are going down. Should you buy a floating rate note, a 10-year current coupon bond or a 10-year zero coupon bond? Does the shape of the yield curve affect your decision? Back to problem 1. Assume the 2-year rate has a 10 bps term premium and the 3- year rate has a 15 bps term premium. Assuming annual rates, calculate the one- year EXPECTED rate 2 years from now. Assume semi-annual rates. 2-year rates are 4% and 10-year rates are 6%. You believe that interest rates for for 8 years beginning in 2 years will be 7%. What should you do? You think rates are going up. Should you buy a floating rate note, a 5-year fixed rate bond or a 10-year fixed rate bond? Does the shape of the yield curve affect your decision? You think rates are going down. Should you buy a floating rate note, a 10-year current coupon bond or a 10-year zero coupon bond? Does the shape of the yield curve affect your decision? Back to problem 1. Assume the 2-year rate has a 10 bps term premium and the 3- year rate has a 15 bps term premium. Assuming annual rates, calculate the one- year EXPECTED rate 2 years from now.
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Q1 Semi annual rates 2 years rate 4 If invested for 10 Years 6 Balance after 2 years Period Opening ... View the full answer
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