Consider the following $1,000 par value zero coupon bonds:Bond Years to Maturity YTM(%)A16.0%B 27.0C 37.5D 48.0According to the expectations hypothesis, what is the market's expectation of the yield curve one year from now? Specifically, what are the expected values ofnext year's yields on bonds with maturities of (a) one year? (b) two years? (c) three years? (Do not round intermediate calculations. Round your answers to 2decimal places.)

Expectations HypothesisThe Expectations Hypothesis is a theory used in finance to explain the term…

Answered: Consider the following $1,000 par value…

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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Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity A 1 YTM(%) 5.8% B 1234 2 6.8 3 7.3 4 7.8 C D Required: According to the expectations hypothesis, what is the market's expectation of the yield curve one year from now? Specifically, what are the expected values of next year's yields on bonds with maturities of (a) one year? (b) two years? (c) three years? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Bond Years to Maturity YTM (%) B 1 C 2 D 3 di di do % % %
You observe that one, two, and three-year maturity, default-free, zero-coupon bonds have YTM of 7%, 7.8%, and 7.5%, respectively. Based on the expectations theory, what is the implied one-year forward rate, two years from today? ⒸA. 8.62% OB 6.90% OC.8.12% O 0.7.39%
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a 4.0% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 4.0% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) Note: Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. Economy Boom Normal Growth Recession Probability 0.25 0.50 0.25 YTM 10.0 % $ 9.0 % 8.0 % Capital Gain 43.44 $ (56.56) Price $ Coupon Interest 4.00 HPR (52.56) % % %
A treasury bond with $100 maturity face value has a $9 annual coupon, and 15 years left to maturity. What price will the bond sell for assuming that the 15 year yield to maturity in the market is 4%, 9%, and 14% respectively. Explain whether the price movements would have been greater or smaller if a 10 year bond had been used rather than a 15 year one.
None
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2022. All of the bonds have a par value of $1,000 and pay semiannual coupons. Rate 22 6.052 6.143 Maturity Month/Year: May 33 May 36 May 42 Bid 103,4560 104.4900 22 Yield to maturity Asked 103.5288 104.6357 ?? Change Ask Yield. +.3248 +4245 +.5353 5.919 ?? 3.951 In the above table, find the Treasury bond that matures in May 2036. What is your yield to maturity if you buy this bond? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Assume an FI has a position in 10-year zero coupon bonds. The current yield to maturity is 5 per cent. Maximum adverse daily yield move is already calculated at 46 basis points. What is the price volatility of these bonds? (Give your answer to 2 decimal places.)
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a 3.0% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 3.0% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) Note: Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. Economy Boom Normal Growth Recession Probability 0.30 0.60 0.10 YTM 10.0% 8.0 % 7.0 % Price Capital Gain Coupon Interest HPR % % %
Assume the current Treasury yield curve shows that the spot rates for six months, one year, and one and a half years are 1.0%, 1.1%, and 1.3%, all quoted as semiannually compounded APRs. What is the price of a $1,000 par, 4.75% coupon bond maturing in one and a half years (the next coupon is exactly six months from now)? The price of this bond is $ (Round to the nearest cent.)
Consider the following $1,000 par value zero-coupon bonds: Bond Maturity A 1 BU C D Years until Yield to Interest rate 2 3 Maturity (years) 1 2 3 4 Maturity 8.00% 9.00 9.50 10.00 Required: a. According to the expectations hypothesis, what is the market's expectation of the one-year interest rate three years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What are the expected values of next year's yields on bonds with maturities of (a) 1 year; (b) 2 years; (c) 3 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.) YTM Check my work % % % %
Interest rates on 4-year Treasury securities are currently 5.4%, while 6-year Treasury securities yield 7.85%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.
Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a 4.0% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 4.0% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) Note: Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. Economy Boom Normal Growth Recession Probability 0.35 0.40 0.25 YTM 11.0% 9.0 % 7.0 % Price Capital Gain Coupon Interest HPR % % %

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