Reference no: EM133120474
Subject: Principles of finance
As an investor, you expect the inflation rate to be 7% next year, to fall to 5% during the following year and then to remain at a rate of 3% thereafter. Assuming that the real risk-free rate, k*, will remain at 2% and that maturity risk premiums on treasury securities rise from zero on very short-term bonds (those that mature in a few days) to a level of 0.2% point for 1-year securities. Furthermore, maturity risk premiums increase 0.2% point for each year to maturity, up to a limit of 1.0% point of 5-year or longer-term T-bonds.
From the information, you are required to answer the following questions.
a. Calculate the interest rate on 1-, 2-, 3-, 4-, 5-, 10- and 20-year treasury securities, and plot the yield curve.
b. Using your answer in part (a), draw the yield curve.
c. Explain the general economic conditions that could be expected to produce the yield curve at (b).
d. What would you do if you are the lender? Are going to lend more? Or less? Explain your answer.
|
Calculate the npv of investment
: Windsor Co. is evaluating the proposed acquisition of a new machine, which can be used for 5 years. This machine is in asset class 9, which has a CCA rate of 30
|
|
Calculate the operating cash flows
: Windsor Co. is evaluating the proposed acquisition of a new machine, which can be used for 5 years. This machine is in asset class 9, which has a CCA rate of 30
|
|
Case study-rhodes corporation
: Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)
|
|
Apply critical thinking and judgement
: How did Colonisation impact Indigenous Australians - Apply critical thinking and judgement in identifying appropriate help and supports suitable for Kirra's
|
|
Calculate the interest rate
: As an investor, you expect the inflation rate to be 7% next year, to fall to 5% during the following year and then to remain at a rate of 3% thereafter.
|
|
Explain the dominance of american banks
: 1. Suppose you own shares in a company. The current price per share is $25. Another company has just announced that it wants to buy your company and will pay $3
|
|
Cause of the collapse of the us financial system
: What was the cause of the collapse of the US Financial System? What companies do they mention and why are they relevant to the overall situation?
|
|
Overview of the risk management project
: Choose Intel (INTC) or Ford Motor Co. (F) or a company of your choosing which could benefit from a risk management strategy that uses futures. Please include th
|
|
Development and implementation of signal processing
: Development and implementation of signal processing algorithms in Matlab or Python and Understand the design of multirate signal processing
|