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quiz 6.6 homework




Question;Question 1 1;out of 1 points;Interest rates The Wall Street Journal reports that the rate;on 3-year Treasury securities is 7.00 percent, and the 6-year Treasury rate is;7.25 percent. From discussions with your broker, you have determined that;expected inflation premium is 1.75 percent next year, 2.25 percent in Year 2;and 2.40 percent in Year 3 and beyond. Further, you expect that real interest;rates will be 3.75 percent annually for the foreseeable future. What is the;maturity risk premium on the 6-year Treasury security?;Question 2;1 out of 1 points;Interest rates A corporation's 10-year bonds are currently;yielding a return of 7.75 percent. The expected inflation premium is 3.0;percent annually and the real interest rate is expected to be 3.00 percent;annually over the next 10 years. The liquidity risk premium on the;corporation's bonds is 0.50 percent. The maturity risk premium is 0.25 percent;on 2-year securities and increases by 0.10 percent for each additional year to;maturity. What is the default risk premium on the corporation's 10-year bonds?;Question 3 1;out of 1 points;Which of the following is NOT a money market instrument?;Question 4;1 out of 1 points;The Wall Street Journal reports that the rate on 3-year;Treasury securities is 7.00%, and the 6-year Treasury rate is 6.20%. From;discussions with your broker, you have determined that expected inflation;premium is 2.25% next year, 2.50% in Year 2, and 2.50% in Year 3 and beyond.;Further, you expect that real interest rates will be 4.4% annually for the;foreseeable future. Calculate the maturity risk premium on the 3-year Treasury;security.;Question 5;1 out of 1 points;Suppose we observe the following rates: 1R1 = 12%, 1R2 =;15%. If the unbiased;expectations theory of the term structure of interest rates;holds, what is the one-year interest rate expected one year from now, E(2r1)?;Question 6;1 out of 1 points;You note the following yield curve in The Wall Street;Journal. According to the unbiased expectations hypothesis, what is the;one-year forward rate for the period beginning one year from today, 2f1?;Question 7;1 out of 1 points;The Wall Street Journal reports that the current rate on;10-year Treasury bonds is 6.25%, on 20-year Treasury bonds is 7.95%, and on a;20-year corporate bond is 10.75%. Assume that the maturity risk premium is;zero. If the default risk premium and liquidity risk premium on a 10-year;corporate bond is the same as that on the 20-year corporate bond, calculate the;current rate on a 10-year corporate bond.;Question 8;1 out of 1 points;Based on economists;forecasts and analysis, one-year Treasury bill rates and liquidity;premiums for the next four years are expected to be as;follows;R1 = 5.95%;E(r2) = 6.25% L2 = 0.05%;E(r3) = 6.75% L3 = 0.10%;E(r4) = 7.15% L4 = 0.12%;Using the liquidity premium hypothesis, what should be the;current rate on four-year Treasury securities?;Question 9;1 out of 1 points;If the yield curve is downward sloping, what is the yield to;maturity on a 30-year Treasury bond relative to a 10-year Treasury bond?;Question 10;1 out of 1 points;Unbiased Expectations Theory Suppose we observe the;three-year Treasury security rate (1R3) to be 6 percent, the expected one-year;rate next year E(2r1) to be 3 percent;and the expected one-year rate the following year E(3r1) to;be 5 percent. If the;unbiased expectations theory of the term structure of;interest rates holds, what is the one-year Treasury security rate, 1R1?;Question 11;1 out of 1 points;Unbiased Expectations Theory One-year Treasury bills;currently earn 5.50 percent. You expect that one year from now, one-year;Treasury bill rates will increase to 5.75 percent. If the unbiased expectations;theory is correct, what should the current rate be on two-year Treasury;securities?;Question 12 1;out of 1 points;Which of the following statements is correct?;Question 13;1 out of 1 points;Using the unbiased expectations theory, calculate the;one-year forward rates on zero-coupon Treasury bonds for years two, three, and;four as of May 23, 20XX.;Question 14;1 out of 1 points;This is the interest rate that would exist on a default-free;security if no inflation were expected.;Question 15;1 out of 1 points;You are considering an investment in 30-year bonds issued by;Moore Corporation. The bonds have no special covenants. The Wall Street Journal;reports that 1-year T-bills are currently earning 3.55%. Your broker has;determined the following information about economic activity and Moore;Corporation bonds;Real interest rate = 2.75%;Default risk premium = 1.05%;Liquidity risk premium = 0.50%;Maturity risk premium = 1.85%;What is the inflation premium?


Paper#48240 | Written in 18-Jul-2015

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