Assuming the pure expectations theory is valid

Assignment Help Financial Management

Reference no: EM131944827

1. Suppose the real risk-free rate is 3.50% and the future rate of inflation is expected to be constant at 2.20%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. Show work.

a. 3.5% b. 5.3% c. 5.70% d. 4.5%

2. If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond? Show work.

a. 6.3% b. 8.5% c. 2.20% c. 1.90%

Reference no: EM131944827

Questions Cloud

Notifying the developer via e-mail : Discuss different ways to respond to errors, such as notifying the user onscreen, writing to an error log, notifying the developer via e-mail, and others.

What were the economic and political factors that influenced : What were the economic and political factors that influenced the passage of the Airline Deregulation Act of 1978? What are the two exceptions to the act?

Formulate two application problems : Formulate two application problems that can be solved with a system of equations in either 2 or 3 variables. Check your problem statements

Implementation of all of the computer systems : It has been argued that getting nursing involved in the implementation of all of the computer systems in healthcare is a good thing

Assuming the pure expectations theory is valid : What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid?

Analyze what factors contributed to european economic growth : According to the chapters for this unit, what factors contributed to European economic growth between 950 and 1100?

Competitive strategy - Age care who use profit analysis : It's about competitive strategy - Age care who use profit analysis. Any resort here in AUSTRALIA who used SWOT analysis

Calculate the annual after-tax cost of debt : Calculate the annual after-tax cost (in dollars) of debt given the following information:

How will the new inventory system impact your recommendation : Which option should you choose? (Hint - value the store's ongoing operations as a perpetuity) How will the new inventory system impact your recommendation?

User Account

All Pages