Based on the pure expectations theory, is the following statement true or false? A certificate of deposit (CD) for two years will have the same yleld as a CD for one year followed by an investment in another one-year CD after one year. True O False The yield on a one-year Treasury security is 4.6900%, and the two-year Treasury security has a 7.0350% 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 O 9.4500% O 10.7730% O 8.0325% O 12.0015%

Based on the pure expectations theory, is the following statement true or false? A certificate of deposit (CD) for two years will have the same yleld as a CD for one year followed by an investment in another one-year CD after one year. True O False The yield on a one-year Treasury security is 4.6900%, and the two-year Treasury security has a 7.0350% 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 O 9.4500% O 10.7730% O 8.0325% O 12.0015%

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 real risk-free rate of interest is r*=4%�*=4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next two years and 3.90% per year for the next three years. The maturity risk premium is 0.1×(t−1)%0.1×�−1%, where t� is number of years to maturity, a liquidity premium is 0.45%, and the default risk premium for a corporate bond is 1.40%. The average inflation during the first 4 years is2.37% . What is the yield on a 4-year Treasury bond? 4.30% 8.90% 6.75% 7.05% What is the yield on a 4-year BBB-rated bond? 8.90% 7.50% 7.05% 8.45% If the yield on a 5–year Treasury bond is 7.38% and the yield on a 6–year Treasury bond is 7.83%, the expected inflation in 6 years is . (Hint: Do not round intermediate calculations.)
Bill Adams wants to compute the bank discount yield of a T-bill. A T-bill with a face value of $100,000 is selling for $96,500. If there are 120 days until maturity, 1) What is its bank discount yield? 2) What is its holding period return? 3) What is its effective annual rate of return? 4) What is the money market yield?
(Related to Checkpoint 7.1) (Expected rate of return and risk) B. J. Gautney Enterprises is evaluating a security One-year Treasury bills are currently paying 3.1 percent. Calculate the investment's expected return and its standard deviation Should Gautney invest in this security? Probability 0.10 0.50 Return -6% 1% 5% 9% 0.30 0.10 (Click on the icon in order to copy its contents into a spreadsheet.) CID a. The investment's expected return is%. (Round to two decimal places)
A trader, Peter, buys a treasury note with a face value of 1000, which will mature in 180 days. Currently such T-notes are yielding 4.25% per annum. a) what amount will peter pay for the T-note? b) What is the annual rate of return (HPY) for peter? c) what is the current yield of maturity (YTM) for the security?
The real risk-free rate is 2%, and inflation is expected to be 2% for the next 2 years. A 2-year Treasury security yields 5.0%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place.
If the 10 year government bond rate is 2.78% and the long term return on the market as proxied by the ASX is 5.85%, assuming the beta for WBC is 1.26 and for CBA is 1.23, use the Capital Asset Pricing Model (CAPM) to find the expected returns for WBC and CBA.
Assuming away any risk differential of investing in a two-year security for two years or a on-year security followed by another one-year security during year two, we can calculate the one-year interest rate expected by market investors next year For example, if a two-year security offers an annual interest rate of 6% for each of two years and a one-year security offers an annual interest rate of 5%, the one year rate one year from today impounded in the two-year rate must be 7%. In other words, if an investor in a two-year security earns 65 for each of two years, the investor will earn 12% over the two year period -- assuming away the affect of compounding (interest on Interest) Since we are assuming a strategy of investing in a one-year instrument followed by another one-year instrument is equal in risk to investing in a two-year instrument for two years, the average annual return of the two sequential one-year securities must also sum to 12%. Given that a one-year security currently…
B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 2.9 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security? Probability Return0.15 -3%0.30 2%0.40 4%0.15 6% The investment's standard deviation is _______ % . round to two decimal places
(Expected rate of return and risk) B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 4.6 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security? Return -4% 1% 6% 0.05 8% (Click on the icon in order to copy its contents into a spreadsheet.) Probability 0.05 0.35 0.55 a. The investment's expected return is 3.85%. (Round to two decimal places.) b. The investment's standard deviation is%. (Round to two decimal places.) C
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: ? %…
Recall that on a one-year Treasury security the yield is 4.0000% and 5.4000% 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 0.4%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 6.8509% 6.0096% 7.6322% 5.1082%
B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 5.2 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security? Probability Return a. 0.05 0.50 0.40 0.05 -5 3 7 8 % % % % The investment's expected return is ___%.

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