4. The equilibrium rate of return is 8 percent for this particular security. For all securities,...
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4. The equilibrium rate of return is 8 percent for this particular security. For all securities, the inflation risk premium is 1.25 percent and the real risk-free rate is 3.5 percent. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security's default risk premium if the nominal risk-free rate is 475 basis points a. 1.23% b. 1.79% C. 1.95% d. 2.01% 5. You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the one-year forward rate for the period beginning two years from today? a. 1.68% b. 1.86% C. 2.00% d. 2.23% Maturity One day One year Two year Three year Four year Yield (%) 1.14% 1.66% 1.90% 2.01% 2.15% 6. Based on economists' forecasts and analysis, one-year T-bill rates, future one-year rates, and liquidity premiums are expected to be as follows: 0R = 0.50% E(17) = 0.91% E(271) = 1.01% E(371) = 1.31% What is the spot rate for three-year securities? a. 0.88% b. 0.73% c. 0.50% d. 0.79% L = 0.06% L = 0.17% L3 = 0.19% 4. The equilibrium rate of return is 8 percent for this particular security. For all securities, the inflation risk premium is 1.25 percent and the real risk-free rate is 3.5 percent. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security's default risk premium if the nominal risk-free rate is 475 basis points a. 1.23% b. 1.79% C. 1.95% d. 2.01% 5. You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the one-year forward rate for the period beginning two years from today? a. 1.68% b. 1.86% C. 2.00% d. 2.23% Maturity One day One year Two year Three year Four year Yield (%) 1.14% 1.66% 1.90% 2.01% 2.15% 6. Based on economists' forecasts and analysis, one-year T-bill rates, future one-year rates, and liquidity premiums are expected to be as follows: 0R = 0.50% E(17) = 0.91% E(271) = 1.01% E(371) = 1.31% What is the spot rate for three-year securities? a. 0.88% b. 0.73% c. 0.50% d. 0.79% L = 0.06% L = 0.17% L3 = 0.19%
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Related Book For
Financial Markets and Institutions
ISBN: 978-0077861667
6th edition
Authors: Anthony Saunders, Marcia Cornett
Posted Date:
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