5. Suppose the yield to maturity on a one-year zero-coupon bond is 5%. The yield to maturity on a two-year zero-coupon bond is 3%. (a) According to the Expectations Hypothesis, what is the expected one-year rate in the marketplace for year 2? (b) Consider an investor who is absolutely convinced that interest rates will not change so that the yield on a one-year bond will still be 5% this time next year. Which of these two bonds, the one-year zero coupon bond, or the two-year zero coupon bond, should this investor buy to maximize their one year return (under their strongly-held belief about future rates)?

The real risk-free rate is 3.00%. Inflation is expected to be 2.25% this year and 3.50% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. %

The real risk-free rate, r, is 1.3%. Inflation is expected to average 1.1% a year for the next 4 years, after which time inflation is expected to average 3.8% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 9.8%, which includes a liquidity premium of 0.4%. What is its default risk premium? Do not round Intermediate calculations. Round your answer to two decimal places.

Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP.       Corporate Bond Yield   Rate Spread = DRP + LP U.S. Treasury 0.73 % — AAA corporate 0.93   0.20 % AA corporate 1.33   0.60   A corporate 1.75   1.02     What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: 6.553%----->correct 7-year Corporate yield: ? %…

The real risk-free rate, r*, is 2%. Inflation is expected to average 3.45% a year for the next 4 years, after which time inflation is expected to average 3.9% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10%, which includes a liquidity premium of 0.9%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) Coupon rate (annual payment) YTM a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. b. What is the zero-coupon yield curve for years 1 through 4? Note: Assume annual compounding. a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. The yield to maturity of a two-year, zero-coupon bond is %. (Round to two decimal places.) b. What is the zero-coupon yield curve for years 1 through 4? The yield to maturity for the three-year and four-year zero-coupon bond is found in the same manner as the two-year zero-coupon bond. The yield to maturity on the three-year, zero-coupon bond is %. (Round to two decimal places.) %. (Round to two decimal places.) The yield to maturity on the four-year, zero-coupon bond is Which graph best depicts the yield curve of the zero-coupon bonds? (Select the best choice below.) O A. 8- 7- 6-…

The real risk-free rate is 2.00%. Inflation is expected to be 1.75% this year and 5.00% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. ___% What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. ___%