Assume that the real risk-free rate is r* = 2% and the average expected inflation rate is 3% for each future year. The DRP and LP for Bond X are each 1%, and the applicable MRP is 2%. What is Bond X’s interest rate?
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A: Answer to the question is as follows:
- Assume that the real risk-free rate is r* = 2% and the average expected inflation rate is 3% for each future year.
- The DRP and LP for Bond X are each 1%, and the applicable MRP is 2%. What is Bond X’s interest rate?
- Is Bond X (1) a Treasury bond or a corporate bond and (2) more likely to have a 3-month or a 20-year maturity?
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- The real risk-free rate is 4%. Inflation is expected to be 3% this year, 4% next year, and then 3% thereafter. The maturity risk premium is estimated to be 0.0003 x (t - 1), where t = number of years to maturity. What is the nominal interest rate on a 7-year Treasury security? Do not round intermediate calculations. Round your answer to two decimal places.Currently, the general price level is 150.00 and people expect it to increase to 156.00 next year. Therefore, the expected rate of inflation equals 4.00 percent. Moreover, there is a one-year bond that promises to pay $107,000.00 next year and is selling for $100,000.00 in the bond market today. So, the nominal interest rate equals 7.00 percent, and the ex-ante real interest rate on this bond equals 3.00 percent. Because of some news, people revise their expectations of the future price level to 159.00. According to the Fisher Effect, the price of the bond today will change to _____ dollars.Over the next three years, the expected path of 1-year interest rate is 4, 1, and 1 percent. Today if you buy $1 of one-year bond and when it matures you use the money you receive to buy another one-year bond, then your expected rate of return for this $1 investment is ____% (round to the nearest integer). If the expectations theory of the term structure is true, then it implies that the current interest rate on 2-year bond must be ____% (round to one decimal place x.x)
- a) Assume that the nominal return on U.S. government T-bills was 10% during 2002, when the rate of inflation was 6%. The real risk-free rate of return on theseT-bills was: b) When individuals believe they have sufficient income and assets to cover their expenses while maintaining a reserve for uncertainties, they are most likely in the phase of the investment life cycle. gifting B. consolidation C. accumulation D. spending c) Find the duration of a 3-year bond with annual coupon payments of $80 and a par value of $1,000. The current market price of the bond is $950.25. If the YTM of the bond dropped by 1%, what would happen to the bond price?Suppose that on January 1, 2023, the price of a one-year Treasury bill with a face value of $1,000 is $940.01. Investors expect that the inflation rate will be 3% during , but at the end of the year, the inflation rate turns out to have been 2%. he nominal interest rate on the bill (measured as the yield to maturity) is enter your response here %. (Round your response to two decimal places.)1) If a $2,000 one-year bond pays $170 in annual interest, the interest rate on this bond is (do NOT use decimal)? 2) If the interest rate changes to 19.5%, the bond price will be? 3) If the interest rate changes to 16.5%, bond price will be?
- Let's say we expect the inflation rate to be 7 percent in a year, 5 percent in two years and 3 percent thereafter. The real risk-free interest rate, r*, is constant at 2%, and the maturity risk premium on government bonds begins at zero on ultra-short-term bonds (with a maturity of several days) and rises to 0.2% on bonds with a one-year maturity. The maturity risk premium increases by 0.2% for each one-year increase in maturity, and the five-year maturity and higher maturity of government bonds are constant at the upper limit of 1.0%. 1) Calculate the interest rates of one year, two years, three years, four years, five years, ten years and twenty years of government bonds.Over the next three years, the expected path of 1-year interst rates is 4,1, and 1 percent. Today you buy $1 of one-year bond and when it matures you plan to use the money you receive to reinvest in one-year bond again. Then your expected rate of return for this $1 investment is _____% (round to the nearest integer). If the expectations theory of the term structure is true, then your expected rate of return for buying a two-year bond today is ____%, which implies that the current interest rate on 2-year bond must be ____%Suppose you purchase a $1,500 TIPS on January 1, 2020. The bond carries a fixed coupon rate of 5.5 percent. Over the first two years, semiannual inflation is 1.5 percent, 1.5 percent, 4 percent, and 3 percent, respectively. What is the principal at the end of month 6?
- You borrowed $200 and repaid $211 at the end of the year. During the year, inflation was 0.7%. What was the real interest rate, in percent? (Please use the Fisher effect to approximate your answer if appropriate.) Round to one decimal place digit and do not enter the % sign. If your answer is 6.14%, enter 6.1. If your answer is 6.16%, enter 6.2. If appropriate, remember to enter the-sign 4.8If inflation rises, why is a bond more likely to be sold at a discount to its face value?Explain, with reference to the bond’s coupon.An increase in the expected rate of inflation will the expected return on bonds relative to the that on real assets, and shift the curve to the .
