Assume that the one-year rate (short-term) over the next 3 years are 2023: 4% 2024: 5% 2025: 6% (1) Use the expectations theory to calculate the two-year rate (long-term) and the three-year rate (long-term). (2) Draw a yield curve.

DONE IN EXCEL especify how to donthe graph step by step okease 5. (a) Use rate of return analysis to decide which one will you select if your MARR is 14% per year? (b) Graph interest rate vs. present value for both option 1 and 2. (c) Discuss how your selection between option 1 and 2 will change when MARR is changed and at which interest rate the two options are the same economically. The following two alternatives are mutually exclusive. Annual Benefit Salvage Value Alternative Initial Life, Cost years 4. Option 1 Option 2 $42,000 $45,000 $10,000 $11,500 $4,000 $4,200 6.

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Consider a 2-year European put with a strike price of $52 on a stock whose current stock price is $50. Suppose that there are two time steps, and in each time step the stock price either moves up by 30% or moves down by 30%. Also suppose that risk-free rate is 7% per annum with continuous compounding. What is the value of the European put option?

Assume the following states of the world could exist in the economy tomorrow. Find the expected return for this stock. Reminder that the states of the world have to add to 100%. Probability Return 30% -1 50% 3 xx% 8

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Suppose that the current one-year rate (one- year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1=6%, E(2r1) =7%, E(3r1) =7.5% E(4r1)=7.85% 1 Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. Show your answers in percentage form to 3 decimal places.

You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the 1-year forward rate for the period beginning one year from today, 2f1? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Maturity One day One year Two years Three years. Forward rate Yield 2.80% 6.30 7.30 9.80

Finding Forward Rates Suppose the following yield curve: 1-period rate = 4.75%, 2-period rate=4.85%, 3-period rate= 4.90%, 4 period rate=5.01%. What is the 2 year forward rate in 2 years? What is 1 year rate in 2 years?

If the value of sustainable investing is $158.7 and the discount rate is 5.8% while the value of non-sustainable investing is $22.81 and the expected value of the company is $27.14. What is the assumed probability of being sustainable given a 5 year horizon? (Answer in percent to 2 decimals)