You believe that the spread between municipal bond yields and U.S. Treasury bond yields is going to narrow in the coming month. How can you profit from such a change using the municipal bond and T-bond futures contracts?
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You believe that the spread between municipal bond yields and U.S. Treasury bond yields is going to narrow in the coming month. How can you profit from such a change using the municipal bond and T-bond futures contracts?
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- In the United States. The date is 26 July 2022. You decidethat the market has under-estimated the yield on long term Treasurybonds. You observe the following bond (in the picture). Describe how you would use this bond to trade in order to profit from your beliefs.For the 10 Year Government Bonds Yield Curve for Turkey, what is the market predicting about the movement of future short-term interest rates? Explain in detail using the Liquidity Premium Theory.Give typing answer with explanation and conclusion Consider the prevailing condition of inflation (including changes in global oil price), the economy, budget deficit, decreases in expected remittance inflow, and the central bank monetary policy that could affect interest rate. Based on the prevailing conditions do you think bond price will increase or decreases in next six-month period. In the real economic environment which other factors may affect the bond price? Which factor in your opinion will have biggest impact on bond price? Assess the above given situations.
- Consider a state space model. Suppose there are two economic states in the next year.The probability of occurrence of state 1 is 0.29 and the probability of occurrence of state 2 is 0.71. There is a risk-free bond traded in this market with the time 1 payoff of $100. The time 0 price of the bond is $89.71.All primitive state-contingent claims are traded in this market. (a) The time 0 price of the state-contingent claim paying off $1 in state 1 is. What is the price of, the state-contingent claim paying off $1 in state 2? (b) Suppose that there is another security traded in this market: a stock paying $50.0 in state 1, and $100.0 in state 2. What is the time 0 price of the stock? (c) What is the expected return on the risk-free bond (in %)? (d) What is the expected return on the stock? (e) What is the standard deviation of the return of the bond? (f) What is the standard deviation of the return of the stock?For the 10 Year Government Bonds Yield Curve for Turkey, what is the market predicting about the movement of interest rates that go further into the longer future? Explain in detail using the Expectations Theory.PIMCO gives the following example of an Inflation Linked Bond (ILB), called a Treasury Inflation Protected Security (TIPS) in the US. "How do ILBs work? An ILB’s explicit link to a nationally-recognized inflation measure means that any increase in price levels directly translates into higher principal values. As a hypothetical example, consider a $1,000 20-year U.S. TIPS with a 2.5% coupon (1.25% on semiannual basis), and an inflation rate of 4%. The principal on the TIPS note will adjust upward on a daily basis to account for the 4% inflation rate. At maturity, the principal value will be $2,208 (4% per year, compounded semiannually). Additionally, while the coupon rate remains fixed at 2.5%, the dollar value of each interest payment will rise, as the coupon will be paid on the inflation-adjusted principal value. The first semiannual coupon of 1.25% paid on the inflation-adjusted principal of $1,020 is $12.75, while the final semiannual interest payment will be 1.25% of $2,208, which…
- For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-termgovernment bond rate as the risk-free rate of return?Does the rate you use as the risk-free rate have an impact on what market premium might beappropriate? Historically, large-company stocks have earned an average return of 12.1% per annum, while US Treasury bills and long-term government bonds have earned average returns of 3.5% and5.9% respectively.The yield on two-year government bonds is 4.5%, and one-year government bonds provide a yield of 3%. In addition, the real risk-free interest rate (r*) is 1%, and the maturity risk premium is 0. 1) According to the theory of expectation, what is the rate of return on annual government bonds from now to later? Calculate the rate of return using the geometric mean. 2) What are the expected inflation rates for the first and second years respectively?1) If a speculator expects interest rates to increase, should they go long or short on a futures contract for a 10-year US treasury bond? 2) True or False: The yield curve provides a forecast of economic growth.
- The rate of return that you would earn if you bought a bond and held it to its maturity date is called the bond’s yield to maturity, or YTM. If interest rates in the economy rise after a bond has been issued, what will happen to the bond’s price and to its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond’s price?The rate of return you would get if you bought a bond and held it to its maturity date is called the bond's yield to maturity. If interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and to its yield to maturity? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price?The rate of return that you would earn if you bought a bond and held It to its maturity date is called the bond's yield to maturity (YTM). If Interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and to Its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price? Briefly explain with necessary numerical data.