2. [13 points] On Feb 15, 2015, the yields to maturity in the table below were...

 

Transcribed Image Text:

2. [13 points] On Feb 15, 2015, the yields to maturity in the table below were recorded on Treasury discount bonds. Maturity Date February 15, 2020 February 15, 2025 February 15, 2030 February 15, 2035 Forecast Date a) [7 points] If the expectations theory of the term structure holds, what do bond traders expect the yield to maturity on five-year discount bonds to be on February 15, 2020, February 15, 2025, and February 15, 2030? Put your final answers in the provided table below. February 15, 2020 February 15, 2025 February 15, 2030 Yield to Maturity (%/year) 1.56 5 10 15 20 2.05 2.34 2.51 YTM on Five-year Treasury Discount Bond (%/year) b) [6 points] Suppose instead that the liquidity premium and preferred habitat theory holds, and that bond traders expect that the yield on five-year discount bond to remain at 1.56 percent per annum until February 15, 2030. What are the liquidity premia in five-, ten-, fifteen- and twenty-year discount bonds? Put your final answers in the provided table below. Term (years) Liquidity Premium (%/year) 2. [13 points] On Feb 15, 2015, the yields to maturity in the table below were recorded on Treasury discount bonds. Maturity Date February 15, 2020 February 15, 2025 February 15, 2030 February 15, 2035 Forecast Date a) [7 points] If the expectations theory of the term structure holds, what do bond traders expect the yield to maturity on five-year discount bonds to be on February 15, 2020, February 15, 2025, and February 15, 2030? Put your final answers in the provided table below. February 15, 2020 February 15, 2025 February 15, 2030 Yield to Maturity (%/year) 1.56 5 10 15 20 2.05 2.34 2.51 YTM on Five-year Treasury Discount Bond (%/year) b) [6 points] Suppose instead that the liquidity premium and preferred habitat theory holds, and that bond traders expect that the yield on five-year discount bond to remain at 1.56 percent per annum until February 15, 2030. What are the liquidity premia in five-, ten-, fifteen- and twenty-year discount bonds? Put your final answers in the provided table below. Term (years) Liquidity Premium (%/year)

Answer rating: 100% (QA)

a 7 points If the expectations theory of the term structure holds what do bond traders expect the yield to maturity on fiveyear discount bonds to be on February 15 2020 February 15 2025 and February 1... View the full answer