Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Please show working. Please answer 1 and 2 1. The real risk-free rate is 2.75%, and inflation is expected to be 4.00% for the next 2 years. A 2-year Treasury security yields 8.25%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places. 2. The real risk-free rate is 2.9%. Inflation is expected to be 2.2% this year, 4.8% next year, and 2.65% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round intermediate calculations. Round your answer to two decimal places.arrow_forwardShow complete stepsarrow_forwardI need help with this questionarrow_forward
- Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: Using the liquidity premium theory, what is the current rate on a four- year Treasury security? R1 = 6.65% E(r₂) 7.75% L2 = 0.10% E(r3) = 7.85% L3 0.20% E(r4) = 8.15% L4 = 0.25% Multiple Choice O 7.736 percent 7.600 percent 7.738 percent 8.400 percentarrow_forwardAn investor in Treasury securities expects inflation to be 2.2% in Year 1, 2.7% in Year 2, and 3.65% each year thereafter. Assume that the real risk-free rate is 2.45% and that this rate will remain constant. Three-year Treasury securities yield 5.50%, while 5-year Treasury securities yield 7.00%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Do not round intermediate calculations. Round your answer to two decimal places.arrow_forwardI would love some expertise help on this question showing the formulas used. Thank you very much in advancearrow_forward
- Suppose the real risk-free rate of interest is 3% and inflation is expected to be 2% and 3% over the next two years. If a 2-year Treasury security yields 6%, what is the maturity risk premium for the 2-year Treasury security? 1.5% 0.5% 0.2% O 1.0%arrow_forwardThe real risk-free rate of interest is 4.5%. Inflation is expected to be 4% in the upcoming year and 6% for each of the next 3 years. Assume that the maturity risk premium (MRP) is zero. What is the yield on a 4-year Treasury security? Question 3Answer a. 6.00% b. 10.00% c. 4.50% d. 5.50%arrow_forwardThe real risk-free rate, r*, is 1.7%. Inflation is expected to average 1.4% a year for the next 4 years, after which time inflation is expected to average 4.4% a year. Assume that there is no maturity risk premium. A 9-year corporate bond has a yield of 11.0%, which includes a liquidity premium of 0.2%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places. 3.2 % Hide Feedbackarrow_forward
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