Please refer to the following graph: Yield Curve 2.00% 1.80% 1.60% 1.40% 1.20% 1.10% 1.00% 0.80% 1 year 2 year 1.50% 3 year 1.80% What does the market expect 1-year interest rate will be next year, according to the expectations theory? O 1.4% O 1.9% O 1.3% O 2.4%
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- Consider a 5-year bond with a face value of $500 and an annual coupon rate of 5%. If the yield is 9% then the market price of this bond will be approximately O $464 O $436 O $394 • $442 Question 19 In the IS-LM model with interest-setting monetary policy and endogenous money, an expansionary monetary policy will tend to cause an increase in the level of income, an increase in the transactions demand for money and an increase in the quantity of money O an increase in the level of real income, an increase in the asset demand for money and a reduction in the quantity of money an increase in the level of income, a decrease in the asset demand for money and a reduction in the quantity of money O adecrease in the level of income, an increase in the asset demand for money and an increase in the transactions demand for money Question 20 In the IS-LM model with interest setting monetary policy and endogenous money, an expansionary fiscal policy will tend to O increase the equilibrium level of…In which of the following situations would you prefer to be the lender? 1) Expected inflation rate is 7 percent and the interest rate is 9 percent 2) The interest rate is 25 percent and the expected inflation rate is 50 percent. 3) The interest rate is 13 percent and the expected inflation rate is 15 percent. O 4) The interest rate is 4 percent and the expected inflation rate is 3 percent. O 5) Expected inflation rate is 1 percent and the interest rate is 4 percent O6) None of the answers are correct5. Consider the one-year interest rates known at the following dates:year 0: 2%year 1: 2.5year 2: 3%year 3: 3.5%year 4: 4%year 5: 4.5%year 6: 5%year 7: 5.5%year 8: 6%year 9: 6.5%Using the Expectations Theory, find the interest rates of maturities 1 through 10. Usethe arithmetic average method. What do they suggest about the shape of the yieldcurve? Make sure to show your work.
- O If the market interest rate (i) increases today, the Price of a Bond (P) today will decline. The following are correct statements about the impact of Market Interest Rate (i*) on value and return of a typical Coupon Bond, EXCEPT: The YTM of a Bond and the Market Interest Rate (i*) are the same value, even in the Short Term. O For a long term bond, if the Market Interest rate (i*) is expected to increase, the current Price of such Bond will Decline. For a two period Bond, if the Market Interest rate (i*) is expected to increase in the next period, the Expected Total Return (RET) on such bond will decline. Long Term Bonds are considered more risky than Short Term bonds, in part due to the risk associated to changes in future interest rates.Assume that investment, government expenditures, taxes are autonomous. C 2000+ 0.65* (Y-T) I 900 - 50i G 400 T 1500 M 1000 P2 L 0.50Y-25iAssume that it is January 1, 2003. The rate of inflation is expected to be 4 percent thought 2003. However, increased government deficits and renewed vigor in the economy are then expected to push information rates higher. Investors expect the inflation rate to be 5 percent in 2004, 6 per percent cent in 2005, and 7 percent in 2006. The real risk-free rate, k*, is expected to remain at 2 percent over the next 5years. Assume that on maturity risk premiums are required on bonds with 5 years of less to maturity. The current interest rate on 5 year T-bonds is 8 Percent. What is the average expected inflation rate over the next 4 year? What should be the prevailing interest rate on 4-year T-bond? What is the implied expected inflation rate in 2007, or Year 5, give that Treasury bonds which mature in the year yield 8 percent?
- The following table shows the average nominal interest rates on six-month Treasury bills between 1971 and 1975, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1971 to 1975. (All rates are rounded to the nearest tenth of a percent.) Nominal Interest Rate Inflation Rate Year (Percent) (Percent) 1971 4.5 4.2 1972 4.5 3.3 1973 7.2 6.3 1974 8.0 11.0 1975 6.1 9.1 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 8.0 7.0The money stock grows by 15%, the real GDP grows by 2%, the velocity of circulation does not change. What will be the rate of inflation? 17.3% O 17% O 1.1739 O 12.74%Assume that the global average real interest rate is 5%. Britain witnesses severe inflation, where the current inflation rate is 10%. To curb inflation they decide to increase interest rates to 17%. Then the real rate of interest in Britain is results in increased the US dollar ($). which is for British bonds and in turn causes the British pound (£) to O 10%; higher; supply; depriciate 7%; higher; demand; appreciate O 7%; higher; demand; depriciate 5%; lower; supply; appreciate than the global average, which against
- Given that: Consumption C = 0.7Y+100 I = -40r +1000 Ms = 4300 L1 = 0.2Y L2 = -40r+ 230 Investment Money supply Transaction-precautionary demand for money Speculative demand for money %3D %3D :Value of interest rate (r) is 10 O 12 O 6 0 8AN2141 a. liko? b. 20% 125 10% 14% 12% 10% IN 24 Turkey Yield Curve - 6 Jun 2023 6Y Residual Maturity BY 111 T 10Y -Turkey (0 Jun 2023) 1M ago OM ago Are the three yield curves depicted here "normal" yield curves? What does the normal yield curve look What does the shape of the current Turkish yield curve tell you about the expectations of market participants regarding inflation?What is the expected real after-tax interest rate, when interest rate is 5%, expected inflation rate is 2% and tax rate is 30% O a. 2.0% O b. 3.0% O c. 2.5% O d. 1.5%
