Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 6, Problem 6.4P
Yield curve A firm wishing to evaluate interest rate behavior has gathered yield data on five U.S. Treasury securities, each having a different maturity and all measured at the same point in time. The summarized data follow.
| U.S. Treasury security | Time to maturity | Yield |
| A | 1 year | 12.6% |
| B | 10 years | 11.2 |
| C | 6 months | 13.0 |
| D | 20 years | 11.0 |
| E | 5 years | 11.4 |
- a. Draw the yield curve associated with these data.
- b. Describe the resulting yield curve in part a, and explain what it says about the direction of future interest rates under the expectations theory.
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Students have asked these similar questions
Yield curve A firm wishing to evaluate interest rate behavior has gathered yield data on five U.S. Treasury securities, each having a different maturity and all measured at the same point in time. The summarized data follow
U.S. Treasury security Time to maturity Yield
A 1 years 12.6%
B 10 years 11.2%
C 6 months 13.0 %
D 20 years 11.0%
E 5 year 11.4%
a. Draw the yield curve associated with these data.
b. Describe the resulting yield curve in part a, and explain what it says about the direction of future interest rates under the expectations theory.
Given the indicated maturities listed in the following table, assume the following yields for U.S. Treasury securities
Maturity (Years)
1
5
10
20
30
Yield (%)
2.0 3.1 3.8 4.6 5.5
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.
Tool tip: Mouse over the points on the graph to see their coordinates.
INTEREST RATE (Percent)
10
Yield Curve
8
7
5
2
1
0
5
10
15
20
25
30
MATURITY (Years)
Clear All
The graph's yield curve is referred to as
yield curve.
Based on the yield curve shown, which of the following statements is true?
Corporate bond yield curves are lower than U.S. Treasury bond yield curves.
Interest rates on short-term maturities are lower than rates on long-term maturities.
co
U.S. Treasury Security
ABCDE
Time to maturity
1 year
10 years
6 months
20 years
5 years
Yield
15.4%
13.9%
15.7%
13.4%
14.1%
Chapter 6 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 6.1 - What is the real rate of interest? Differentiate...Ch. 6.1 - What is the term structure of interest rates, and...Ch. 6.1 - For a given class of similar-risk securities, what...Ch. 6.1 - Prob. 6.4RQCh. 6.1 - List and briefly describe the potential issuer-...Ch. 6.2 - What are typical maturities, denominations, and...Ch. 6.2 - Differentiate between standard debt provisions and...Ch. 6.2 - How is the cost of bond financing typically...Ch. 6.2 - Prob. 6.9RQCh. 6.2 - Prob. 6.10RQ
Ch. 6.2 - Compare the basic characteristics of Eurobonds and...Ch. 6.3 - Why is it important for financial managers to...Ch. 6.3 - Prob. 6.13RQCh. 6.3 - Prob. 6.14RQCh. 6.3 - Prob. 6.15RQCh. 6.4 - Prob. 6.16RQCh. 6.4 - What relationship between the required return and...Ch. 6.4 - If the required return on a bond differs from its...Ch. 6.4 - As a risk-averse investor, would you prefer bonds...Ch. 6.4 - What is a bonds yield to maturity (YTM)? Briefly...Ch. 6 - Learning Goals 5, 6 ST6- 1 Bond valuation Lahey...Ch. 6 - Learning Goal 1 E6-1 The nominal, risk-free rate...Ch. 6 - The yields for Treasuries with differing...Ch. 6 - The YTMs for Treasuries with differing maturities...Ch. 6 - Assume that the rate of inflation expected over...Ch. 6 - Calculate the risk premium for each of the...Ch. 6 - You have two assets and must calculate their...Ch. 6 - Prob. 6.7WUECh. 6 - Assume a 5-year Treasury bond has a coupon rate of...Ch. 6 - Interest rate fundamentals: The real rate of...Ch. 6 - Prob. 6.2PCh. 6 - Prob. 6.3PCh. 6 - Yield curve A firm wishing to evaluate interest...Ch. 6 - Term structure of interest rates The following...Ch. 6 - Bond interest payments before and after taxes...Ch. 6 - Prob. 6.11PCh. 6 - Prob. 6.13PCh. 6 - Prob. 6.14PCh. 6 - Bond valuation: Annual interest Calculate the...Ch. 6 - Prob. 6.20PCh. 6 - Bond valuation: Semiannual interest Find the value...
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