A recent edition of The Wall Street Journal reported interest rates of 2.85 percent, 3.20 percent, 3.58 percent, and 3.85 percent for three-year, four-year, five-year, and six-year Treasury notes, respectively (e.g., 1R5 = 3.58%). According to the unbiased expectations theory of the term structure of interest rates, what are the expected one-year rates during year 6 (E(6₁)) ? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) Group of answer choices 5.98% 3.28% 4.12% 5.21%

A recent edition of The Wall Street Journal reported interest rates of 2.85 percent, 3.20 percent, 3.58 percent, and 3.85 percent for three-year, four-year, five-year, and six-year Treasury notes, respectively (e.g., 1R5 = 3.58%). According to the unbiased expectations theory of the term structure of interest rates, what are the expected one-year rates during year 6 (E(6₁)) ? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) Group of answer choices 5.98% 3.28% 4.12% 5.21%

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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Suppose the interest rate on a 1-year government bond is 3.00%, on a 4-year government bond is 3.50% and that on a 6-year government bond is 4.90%. What is the market's forecast for 2-year rates 4 years from now, assuming the pure expectations theory is correct? Show your work.
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You observe that the current interest rate on short-term U.S. Treasury bills is 4.86 percent. You also read in the newspaper that the GDP deflator, which is a common macroeconomic indicator used by market analysts to gauge the inflation rate, currently implies that inflation is 1.65 percent. What is the approximate real rate of interest on short-term Treasury bills? (Enter your answer as a percent rounded to 2 decimal places.)
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5. Which of the following statements is FALSE about interest rates? A) As interest rates may be quoted for different time intervals, it is often necessary to adjust the interest rate to a time period that matches that of cash flows. B) The effective annual rate indicates the amount of interest that will be earned at the end of one year. C) The annual percentage rate indicates the amount of simple interest earned in one year. D) The annual percentage rate indicates the amount of interest including the effect of compounding.
Suppose on January 15, 2018, the U.S. Treasury issued a ten-year inflation indexed note with a coupon of 7%. On the date of issue, the CPI (consumer price index) was 215. By January 15, 2028, the CPI index had decreased to 165. What principal and coupon payment was made on January 15, 2028? (Note: U.S. Treasury pays semi-annual coupons) The CPI index deppreciated by The principal payment is $ The coupon payment is $ . (Round to five decimal places.) (Round to the nearest cent.) (Round to the nearest cent.)
The Wall Street Journal reports that the rate on 3-year Treasury securities is 7.10 percent, and the 6-year Treasury rate is 7.35 percent. From discussions with your broker, you have determined that expected inflation premium is 2.60 percent next year, 2.85 percent in Year 2, and 3.05 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.55 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?
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