Treasury securities that matures in 8 years currently have a rate of 11.9 %. Inflation is expected to be 5 percent each of the next 3 years and 6 percent each year after the 3rd year. The maturity risk premium is estimated to be 0.2 (t-1). Where t is the zero. The real risk rate is assumened to be tconsint over time what is the risk free rate of interest. a. 6. 28 b. 4.88 C. 2.51 D. 4.68
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Treasury securities that matures in 8 years currently have a rate of 11.9 %. Inflation is expected to be 5 percent each of the next 3 years and 6 percent each year after the 3rd year. The maturity risk premium is estimated to be 0.2 (t-1). Where t is the zero. The real risk rate is assumened to be tconsint over time
what is the risk free rate of interest.
a. 6. 28
b. 4.88
C. 2.51
D. 4.68
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- The real risk-free rate is 2 percent, and inflation is expected to be 3 percent next year and 6 percent for the following 3 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? a. 8.00% b. 6.50% c. 2.00% d. 5.00% e. 11.00%Suppose the real risk-free rate of interest is r=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 x (t-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 is What is the yield on a 4-year Treasury bond? O 6.75% O 8.90% O 4.30% O 7.05% What is the yield on a 4-year BBB-rated bond? O 7.50% O 7.05 % O 8.45% 8.90% 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.)Suppose the inflation rate is expected to be 6.75% next year, 4.3% the following year, and 2.3% thereafter. Assume that the real risk-free rate, r*, will remain at 1.85% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. Calculate the interest rate on 3-year Treasury securities.
- An investor in Treasury securities expects inflation to be 2.1%in Year 1, 2.7% in Year 2, and 3.65% each year thereafter. Assume that the real risk-free rateis 1.95% and that this rate will remain constant. Three-year Treasury securities yield 5.20%,while 5-year Treasury securities yield 6.00%. What is the difference in the maturity riskpremiums (MRPs) on the two securities; that is, what is MRP5 - MRP3?Treasury securities that mature in 6 years currently have an interest rate of 7.75 percent. Inflation is expected to be 5 percent in each of the next three years and 6 percent each year thereafter. The maturity risk premium is estimated to be 0.10% × (t – 1), where t is equal to the maturity of the bond (i.e., the maturity risk premium of a one-year bond is zero). The real risk-free rate is assumed to be constant over time. What is the real risk-free rate of interest? Group of answer choices 3.00% 1.75% 1.00% 2.50%3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 7% per year for each of the next two years and 6% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Smith and Carter Inc.’s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Smith and Carter Inc. issues 7-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 11.54% 10.94% 10.49% 5.25% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? In…
- The real risk-free rate of interest is 2 percent. Inflation is expected to be 4 percent this coming year, jump to 6 percent next year, and increase to 7 percent the year after (Year 3). According to the expectations theory, what should be the interest rate on 3-year, risk-free securities today? O 6.17% O 7.17% O 7.67% O 6.67% 8.17%3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 8% per year for each of the next two years and 7% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Pellegrini Southern Inc.’s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Pellegrini Southern Inc. issues 15-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. a12.13% b13.18% c11.78% d6.05% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?…the real risk free rate of interest is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium (MRP) is zero. What is the yield on a 2 year Treasury security? What is the yield on 3 year Treasury securities?
- Treasury securities that mature in 6 years currently have an interest rate of 7.00 percent. Inflation is expected to be 5 percent in each of the next three years and 6 percent each year thereafter. The maturity risk premium is estimated to be 0.10% × (t-1), where t is equal to the maturity of the bond (i.e., the maturity risk premium of a one-year bond is zero). The real risk-free rate is assumed to be constant over time. What is the real risk-free rate of interest?Please answer part A-D and give a short explanation of how you arrived at the answer. A) Treasury securities that mature in 10 years currently have an interest rate of 14.7%. Inflation is expected to be 5% each of the next three years and 6% each year after the third year. The maturity risk premium is estimated to be 0.2%(t - 1), where t is equal to the maturity of the bond (i.e., the maturity risk premium of a one-year bond is zero). The real risk-free rate is assumed to be constant over time. What is the real risk-free rate of interest? B) Assume that the expectations theory holds, and that liquidity and maturity risk premiums are zero. If the annual rate of interest on a 2-year Treasury bond is 14.8 percent and the rate on a 1-year Treasury bond is 16.3 percent, what rate of interest should you expect on a 1-year Treasury bond one year from now? C) Assume that a 3-year Treasury note has no maturity premium, and that the real, risk-free rate of interest is 3 percent. If the T-note…An investor in Treasury securities expects inflation to be 14,25% in Year 1, 12,20% in Year 2, 9,60%. in Year 3 and 8,00% each year thereafter. Assume that the real risk-free rate is 2,00% and that this rate will remain constant. Three-year Treasury securities yield 12,87%, while 7-year Treasury securities yield 13,47%. What is the difference in the maturity risk premiums (MRPS) on the two securities; that is, what is MRP, - MRP3?