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Quiz 6 homework




Question;Question 1 1;out of 1 points;Interest rates You are considering an investment in 30 -year;bonds issued by a corporation. The bonds have no special covenants. The Wall;Street Journal reports that 1-year T-bills are currently earning 3.50 percent.;Your broker has determined the following information about economic activity;and the corporation bonds;Real interest rate = 2.50%;Default risk premium = 1.75%;Liquidity risk premium = 0.70%;Maturity risk premium = 1.50%;What is the inflation premium? What is the fair interest;rate on the corporation's 30-year bonds?;Question 2;0 out of 1 points;One-year Treasury bills currently earn 3.75 percent. You;expect that one year from now, one-year Treasury bill rates will increase to;4.15 percent. If the unbiased expectations theory is correct, what should the;current rate be on two-year Treasury securities?;Selected Answer;Question 3;1 out of 1 points;A 2-year Treasury security currently earns 5.13%. Over the;next 2 years, the real interest rate is expected to be 2.15% per year and the;inflation premium is expected to be 1.75% per year. Calculate the maturity risk;premium on the 2-year Treasury security.;Question 4 0;out of 1 points;Which of these statements is true?;Selected;Question 5 0;out of 1 points;Which of the following is NOT a money market instrument?;Question 6;0 out of 1 points;The Wall Street Journal reports that the rate on 4-year;Treasury securities is 7.50% and the rate on 5-year Treasury securities is;9.15%. According to the unbiased expectations hypotheses, what does the market;expect the 1-year Treasury rate to be four years from;Question 7 0;out of 1 points;Which of the following statements is correct?;Question 8;0 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 9;0 out of 1 points;Suppose we observe;the three-year Treasury security rate (1R3) to be 11%, the expected;one-year rate next year E(2r1) to be 4%, and the expected;one-year rate the following year E(3r1) to be 5%. If the unbiased expectations;theory of the term structure of interest rates holds, what is the one-year;Treasury security rate, 1R1?;Question 10;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 11;1 out of 1 points;The Wall Street Journal reports that the rate on 3-year;Treasury securities is 7.25% and the rate on 4-year Treasury securities is;8.50%. The one-year interest rate expected in three years is E(4r1), 4.10%.;According to the liquidity premium hypotheses, what is the;liquidity premium on the 4-year Treasury security, L4?;Question 12;0 out of 1 points;Unbiased Expectations Theory The Wall Street Journal reports;that the rate on 4-year Treasury securities is 4.75 percent and the rate on;5-year Treasury securities is 5.95 percent. According to the unbiased;expectations hypotheses, what does the market expect the 1-year Treasury rate;to be four years from today, E(5r1)?;Question 13;0 out of 1 points;On May 23, 20XX, the existing or current (spot) one-year;two-year, three-year, and four-year zero-coupon Treasury security rates were as;follows;1R1 = 4.55%, 1R2 = 4.75%, 1R3 = 5.25%, 1R4 = 5.95%;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;0 out of 1 points;This is a security formalizing an agreement between two;parties to exchange a standard quantity of an asset at a predetermined price on;a specified date in the future.;Question 15;0 out of 1 points;Primary market financial instruments include stock issues;from firms allowing their equity shares to be publicly traded on stock market;for the first time. We usually refer to these first-time issues as which of the;following?


Paper#48321 | Written in 18-Jul-2015

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