Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Concept explainers

Treasury Market
On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to t…
Question

Please solve these practice problems. An addition to problem 1, 

The yield on a one-year Treasury security is 5.8400%, and the two-year Treasury security has a 7.8840% 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? (Note: Do not round your intermediate calculations.) O 8.4724% 9.9675% O 11.3629% O 12.6587% Recall that on a one-year Treasury security the yield is 5.8400% and 7.8840% 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 0.35%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) O 9.2551% 11.754% 7.8668% O 10.5508% Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.) O 6.61% O 7.10% 6.45% O 6.69%
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Transcribed Image Text:The yield on a one-year Treasury security is 5.8400%, and the two-year Treasury security has a 7.8840% 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? (Note: Do not round your intermediate calculations.) O 8.4724% 9.9675% O 11.3629% O 12.6587% Recall that on a one-year Treasury security the yield is 5.8400% and 7.8840% 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 0.35%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) O 9.2551% 11.754% 7.8668% O 10.5508% Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.) O 6.61% O 7.10% 6.45% O 6.69%
Given the indicated maturities listed in the following table, assume the following yields for US Treasury securities: Maturity (Years) 1 Yield (%) INTEREST RATE (Percent) On the following graph, plot the yield curve implied by these interest rates. Place a blue point (circle symbol) at each maturity and interest rate in the table, and the yield curve will draw itself. 10 9 8 2 1 0 0 5 10 20 2.0 3.1 3.8 4.6 5.5 5 15 MATURITY (Years) 10 The graph's yield curve represents 30 20 25 30 -O Yield Curve yield curve. (?)
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Transcribed Image Text:Given the indicated maturities listed in the following table, assume the following yields for US Treasury securities: Maturity (Years) 1 Yield (%) INTEREST RATE (Percent) On the following graph, plot the yield curve implied by these interest rates. Place a blue point (circle symbol) at each maturity and interest rate in the table, and the yield curve will draw itself. 10 9 8 2 1 0 0 5 10 20 2.0 3.1 3.8 4.6 5.5 5 15 MATURITY (Years) 10 The graph's yield curve represents 30 20 25 30 -O Yield Curve yield curve. (?)
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