Determine the future periodic spot interest rates

Assignment Help Financial Management

Reference no: EM131881339

Determine the future periodic spot interest rates, at one period from now, on a onestep Ho-Lee model, using current periodic spot interest rate of A1 percent, current spot rate over two periods of A2 percent, and an annual interest rate volatility of .005 (.5%).

Then consider the current spot rate over three periods of A3 percent to find the future periodic interest rates in a two-step Ho-Lee model. The period is A4 months.

Note: Interest rates are expressed as annualized rates for the term specified. Report your interest rate answers as fractional numbers like 0.11 for 11% per year.

A1	A2	A3	A4
13	13.25	13.35	11

Find the following.

1. The trend (lambda1) in interest rate in the first period.

2. The trend (lambda2) in interest rate in the second period.

3. The future periodic rate on the upside at the end of one period.

4. The future periodic rate on the downside at the end of one period.

5. The future periodic rate at the up-most branch at the end of two periods.

6. The future periodic rate at the middle branch at the end of two periods.

7. The future periodic rate at the down-most branch at the end of two periods.

8. The future periodic rate at the down-most branch at the end of two periods.

Reference no: EM131881339

Questions Cloud

Calculate the required return on the microsoft company stock : Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on Microsoft company stock.

Supply chain operations in an organization : How does globalization affect internal and external supply chain operations in an organization?

What is the macaulay duration of bond : What is the Macaulay duration of a bond that has a par value of $1,000, a coupon rate of 9.95 percent (paid annually), and that matures in 10 years?

Quality initiative results need to be measured : How would an organization determine if the quality initiative results need to be measured?

Determine the future periodic spot interest rates : Determine the future periodic spot interest rates, at one period from now, on a onestep Ho-Lee model.

Which adviser had the best risk-adjusted performance : The risk-free rate during the year was 4% and the market return was 18%. Which adviser had the best risk-adjusted performance?

Calculate manufacturers or dealers profit recognized : Calculate Manufacturer's or dealer's profit recognized from the lease and The annual lease payment made by Company B at the end of each year.

Polar containers makes high-end coolers for camping : The total task time needed to make a cooler is 360seconds, with the longest individual task taking 50 seconds.

What is the expected capital gains yield for the coming year : What is the expected capital gains (or loss) yield for the coming year? What is the bond's nominal yield to call?

User Account

All Pages