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FIN $310,$ Chapter &

Homowork Notes: All of the homework problems are "interest rate" problems that are all based on:

kngra$=k^{**}+E(IP)+MRP+DRP+LP$

Corporate debt securities have a knom that can include all five components. Treasury securities have a kawn that can include only the first three. Why?

FIN $310,$ Chapter $4$

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Homework Notes $($cont$\text{'}$d$)$:

Using the same information, the ylelds on two year Treasury securities will be: $k^{**}=3\%$;$E(I{P}_1)=2\%$;$E(I{P}_2)=4\%$;$E(I{P}_3)=6\%$

$]=[k^{**}+\frac{E(I{P}_{n+1})+E(I{P}_{n+2})}{2}$

Sample Problem Set:

$If{k}^{***}=3=3\%,E(I{P}_1)=2\%,E(I{P}_2)=4\%,E(I{P}_3)=6\%,if$

$MRP=0,$ find the nominal interest rates for the below listed Treasury securities$.$

$Eq$:${?}_n{T}_1=k^{**}+E(I{P}_{n+1})$

${?}_0{T}_1=$

${?}_1{T}_1=$

${?}_2{T}_1=$

Could you use ${?}_n{T}_2=\frac{{?}_n{T}_1+{?}_{n+1}{T}_1}{2}$ and find the same answers?

$q,($yes$/$no$)$

Again using the same information, find the three year Treasury Yield $(0T_3)$

$Eq$:$0T_3=\frac{{?}_0{T}_1+{?}_1{T}_1+{?}_2{T}_1}{3}$

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