QUESTION 5Consider the effect of an un-anticipated 1 basis point increase in the 5 year bond rate (xt) at timet, which persists at t+1, t+2, ... . Assuming the 2 year bond rate (zt) does notchange, and no other shocks occur at any horizon, what is the most appropriate inference regarding the change in the 10 year bond rate (yt) in the long run (i.e., infinite horizon)?O a. The 10 year bond rate increases by 1.34 in the long-run.O D. The long-run change in the 10 year bond rate is between 1.2263 and 1.4537 with 95% confidence.O C. The 10 year bond rate is not significantly affected by the increase in the 5 year bond rate.O d. The effect cannot be computed because the data is not stationary.

The link between the yields or interest rates of fixed-income products, such as bonds, and their…

Consider the effect of an un-anticipated 1 basis point increase in the 5 year bond rate (x+) at time t, which persists at t+1, t+2,... Assuming the 2 year bond rate (z+) does not change, and no other shocks occur at any horizon, what is the most appropriate inference regarding the change in the 10 year bond rate (y+) in the long run (i.e., infinite horizon)? O a. The 10 year bond rate increases by 1.34 in the long-run. O b. The long-run change in the 10 year bond rate is between 1.2263 and 1.4537 with 95% confidence. O C. The 10 year bond rate is not significantly affected by the increase in the 5 year bond rate. Od. The effect cannot be computed because the data is not stationary.

Consider the effect of an un-anticipated 1 basis point increase in the 5 year bond rate (x+) at time t, which persists at t+1, t+2,... Assuming the 2 year bond rate (z+) does not change, and no other shocks occur at any horizon, what is the most appropriate inference regarding the change in the 10 year bond rate (y+) in the long run (i.e., infinite horizon)? O a. The 10 year bond rate increases by 1.34 in the long-run. O b. The long-run change in the 10 year bond rate is between 1.2263 and 1.4537 with 95% confidence. O C. The 10 year bond rate is not significantly affected by the increase in the 5 year bond rate. Od. The effect cannot be computed because the data is not stationary.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the effect of an un-anticipated 1 basis point increase in the 5 year bond rate (xt) at time t, which persists at t+1, t+2, . Assuming the 2 year bond rate (zt) does not change, and no other shocks occur at any horizon, what is ... the most appropriate inference regarding the change in the 10 year bond rate (yt) in the long run (i.e., infinite horizon)? O a. The 10 year bond rate increases by 1.34 in the long-run. Ob. · The long-run change in the 10 year bond rate is between 1.2263 and 1.4537 with 95% confidence. C. The 10 year bond rate is not significantly affected by the increase in the 5 year bond rate. d. The effect cannot be computed because the data is not stationary.
QUESTION 4 If the rate on a one-year Treasury security is lower than the rate on a two-year treasury security, according to the unbiased expectations theory. the expected one-year rate one year from now on a Treasury security is expected to be: O the same as the current Treasury two-year rate O not enough information to determine O lower than the current Treasury one-year rate O higher than the current Treasury one-year rate O the same as the current Treasury one-year rate
5 Which of the following describes yield to maturity? Select one alternative O A single discount rate that gives the value of a bond equal to its market price when applied to all cash flows. O The coupon rate that causes a bond price to equal its par (or principal) value. O Interest rate earned on an investment that starts today and last for n-years in the future without coupons. O Interest rates implied by current zero rates for future periods of time.
QUESTION 5 According to the liquidity preference hypothesis, which of the following statements is correct? a. If term structure of interest rate is flat, then future short-term rates are expected to keep unchanged. b. The return on investing a two-year bond equals the return of two one-year rollover investments. C. If term structure of interest rate is upward, then future short-term rates are expected to increase. O d. If term structure of interest rate is downward, then future short-term rates are expected to decrease. e. The return on investing a two-year bond is less than the return of two one-year rollover investments.
6. Pure expectations theory The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. A. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now. False True B. The yield on a one-year Treasury security is 5.8400%, and the two-year Treasury security has a 8.7600% yield. Assuming that the pure expectations theory is correct, what is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 14.936% 13.4071% 11.7606% 9.9965% C. Recall that on a one-year Treasury security the yield is 5.8400% and 8.7600% on a two-year Treasury security. Suppose the one-year security does not have a…
Question 6 Hand written plzz izt Imagine that in a given point in time, t, we observe the following yields: i1t = 2%, i2t = 4%, and 6% on US Treasury Bonds. What is the expected short term interest rate at time t+2 if we assume that Expectations Theory holds? - O 6% 10% 5% None of the above
Question 9 If the expectations theory of the term structure of interest rates is correct and the other term structure theories are invalid, and if we observe a downward-sloping yield curve, which of the following is a true statement? Investors expect short-term rates to be constant over time. Investors expect short-term rates to increase in the future. Investors expect short-term rates to decrease in the future. Investors expect short-term rates to be unchanged in the future.
ook int ences Problem 2-11 (LG 2-7) Suppose we observe the three-year Treasury security rate (13) to be 4.9 percent, the expected one-year rate next year-E(21)-to be 5.4 percent, and the expected one-year rate the following year-E(31)-to be 6.4 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places. (e.g., 32.16)) _________% One-year Treasury security rate
Question 2: Given the interest rate determinants information below: Scenario A Scenario B Average expected inflation (IP) 4% 8% Risk-free rate of return (Rf) 1.75% 3% Default Risk Premium (DRP) 1.1% 0.6% Maturity risk premium (MRP) .008 x (t – 1) .006 x (t – 1) Determine the Nominal interest rate (INOM) on 10 years’ (t) security for both the scenarios to decide whether Scenario A or Scenario B is better.
10-2 The rate of return that you would earn if you bought a bond and held it to its maturity date is called the bond's yield to maturity, or YTM. If interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and to its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price?
QUESTION 18 Suppose that the 1-year, 2-year, 3-year, and 4-year spot rates are observed as follows: r1=9.7%, r2=10.2%, r3=10.9%, r4-12.3%, What must be the expected return in year 4 under the liquidity preference theory if the liquidity premium is 0.49%? Oa. 18.63% Ob. 16.61% c. 16.12% Od. 18.14%
Question 4 (i) Write down an equation for the three main components of the nominal long term interest rate on a bond, clearly explaining what each symbol stands for. (ii) Draw a negatively sloped yield curve and label it curve 1. On the same diagram draw a new yield curve labelled curve 2 if the expected rate of inflation both short and long term falls. Label your axes carefully. (iii) Discuss how an increase in inflation uncertainty caused by the Ukraine war can affect the expected rate of inflation and inflation uncertainty and thereby affect UK bonds yields and UK bond prices.

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