Reference no: EM133120097
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, please 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.
Validity of research methodology and procedures
: The peer reviewers check the manuscript for accuracy and assess the validity of the research methodology and procedures.
|
What could you withdraw in terms of a monthly perpetuity
: Suppose that you are 21 years old, and making retirement plans. You are starting to contribute $450 per month to your retirement account at the beginning of eac
|
Determining the estimated value
: Instead of buying, the dealer offers to lease you a car worth $29500 for $698/mo. for 36 months with $6250 down, lease payments due at the beginning of the mont
|
Paying dividends in four years
: Assume that you are using the dividend discount model (the Gordon Growth Model) to value stock. The stock currently pays no dividends, but expected to begin pay
|
Explain the 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.
|
International firm realize from conducting pestel analysis
: What gains would an international firm realize from conducting a PESTEL analysis on a country that the firm is contemplating expanding into?
|
Owning shares of stock
: How would you explain to someone who has not studied financial management why owning bonds is less risky than owning shares of stock?
|
Describe the dividend discount model
: Assume that you are using the dividend discount model (the Gordon Growth Model) to value stock. The stock currently pays no dividends, but expected to begin pay
|
Earn a nominal rate
: If we invest $1,500 in a bank savings account where it will earn a nominal rate of 3 percent per year, compounded semi-annually, how much will it be worth at th
|