FIN 310, Chapter 4 FIN 310, Chapter 4 Homework Notes: All of the homework problems are "interest rate" Homework Notes (cont'd): problems that are all based on: Using the same information, the yields on two year Treasury Knom _= k* + E(IP) + MRP + DRP + LP securities will be: [k*=3%; E(IP1)=2%;E(IP2)=4%;E(IP3)-6%] Corporate debt securities have a knom that can include all five Eq: T2 = k* + E(IP +1) + E(IP #1+2) components. Treasury securities have a know that can include only 2 the first three. Why? of2 = IT2 = Could you use T, = all+ +T, and find the same answers? Sample Problem Set: 2 (yes/no) If k* = 3%, E(IP1) = 2%, E(IP2) = 4%, E(IP3) = 6%, if Again using the same information, find the three year Treasury MRP = 0, find the nominal interest rates for the below listed Yield (oT3) Treasury securities. Eq: nT1 = k* + E(IPn+1) Eq: oT3 = 3 of1= ITL= 2TL=