4. Given the expectations theory as the correct interpretation of the term structure, calculate and depict the yield curves for the provided series of one-year interest rates: 5%, 7%, 7%, 7%, 7% 5%, 4%, 4%, 4%, 4% a. b. How would your yield curves change if people preferred shorter-term bonds over longer- erm bonds? olution:
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- If the interest rates on 1-, 5-, 20-, and 30-year bonds are (respectively)4%, 5%, 6%, and 7%, then how would you describe the yield curve?How would you describe it if the rates were reversed?If the interest rates on 1-, 5-, 10-, and 30-year bonds are 4%, 5%, 6%, and 7%, respectively, how would you describe the yield curve? If the rates were reversed, how would you describe it?Quantitative Problem: Today, interest rates on 1-year T-bonds yield 1.3%, interest rates on 2-year T-bonds yield 2.3%, and interest rates on 3-year T-bonds yield 3.7%. a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. % 1.3 Show All Feedback b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. 2.4 % Show All Feedback c. If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. 3.8 Show All Feedback
- hi can explain to me how to solve the question step by step ? TQ 1. Assuming that the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure for maturities of one to five years, and plot the resulting yield curves for the following series of one-year interest rates over the next five years. how would yields curves change if people preferred short term bonds over long-term bonds? a. 5%, 7%, 7%, 7%, 7% b. 5%, 4%, 4%, 4%, 4% 2. If the yield curve suddenly becomes steeper, how would you revise your predictions of interest rates in the future?Quantitative Problem: Today, interest rates on 1-year T-bonds yield 1.7%, interest rates on 2-year T-bonds yield 2.5%, and interest rates on 3-year T-bonds yield 3.4%. a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. c. If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places.A plot of the yields on bonds with different terms to maturity but the same risk, liquidity, and tax considerations is known as O A. a yield curve. B. a risk-structure curve. OC. a term-structure curve. 5- O D. an interest-rate curve. Suppose people expect the interest rate on one-year bonds for each of the next four years to be 3%, 6%, 5%, and 6%. If the expectations theory of the term structure of interest rates is correct, then the implied interest rate on bonds with a maturity of four years is nearest whole number). %. (Round your response to the 2- Refer to the figure on your right. Suppose the expected interest rates on one-year bonds for each of the next four years are 4%, 5%, 6%, and 7%, respectively. 1. 1.) Use the line drawing tool (once) to plot the yield curve generated. 3 Term to Maturity in Years 2.) Use the point drawing tool to locate the interest rates on the next four years. 5. 3- Interest Rate .....
- Quantitative Problem: Today, interest rates on 1-year T-bonds yield 1.7%, interest rates on 2-year T-bonds yield 2.3%, and interest rates on 3-year T-bonds yield 3.3%. a. If the pure expectations theory is correct, what is the yield ofb 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. c. If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places.Investigating the principle that all bonds are priced to give the same total yield which is the current market rate of interest. REQUIRED: Create your own bond – i.e. the par value may be kept at 1000, but decide your own coupon rate, maturity period and current market rate of interest. Now compute your total yield which should consist of Current Yield plus Capital Gain/Loss Yield and find out if it equates the market rate of interest that you selected.еВook Problem Walk-Through Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065 and it sells for $1,200. a. What are the bond's nominal yield to maturity and its nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % Would an investor be more likely to earn the YTM or the YTC? -Select- -Select- ent yield and to Table 7.1) Round your answer to two decimal places. b. Since the YTM is above the YTC, the bond is likely to be called. Since the YTC is above the YTM, the bond is likely to be called. Since the YTM is above the YTC, the bond is not likely to be called. Since the YTC is above the YTM, the bond is not likely to be called. Since the coupon rate on the bond has declined, the bond is not likely to be called. I. If the bond is called, the capital gains yield will remain the same but the current yield will be…
- What is the current yield? (Hint: Refer to Footnote 6 for the definition of the current yield and to Table 7.1) Round your answer to two decimal places. % Is this yield affected by whether the bond is likely to be called? If the bond is called, the capital gains yield will remain the same but the current yield will be different. If the bond is called, the current yield and the capital gains yield will both be different. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. If the bond is called, the current yield will remain the same but the capital gains yield will be different. If the bond is called, the current yield and the capital gains yield will remain the same.The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? Q1. A certificate of deposit (CD) for two years will have the same yield as a CD for one year followed by an investment in another one-year CD after one year. a. True b. False Q2. The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has a 5.9040% 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.) a. 5.8627% b. 6.8973% c. 7.8629% d. 8.7596% Q3. Recall that on a one-year Treasury security the yield is 4.9200% and 5.9040% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.2%. What is…Given a choice between 5-year and 1-year instruments most people would choose 5-year instruments when borrowing and 1-year instruments when lending. Which of the following is a theory consistent with this observation? Select one: a. Expectations theory O b. Market segmentation theory O c. Liquidity preference theory O d. Maturity preference theory