Liquidity premium theory

Assignment Help Finance Basics
Reference no: EM133119048

Liquidity Premium Theory (LG6-7)

One-year Treasury bills currently earn 2.30 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 2.50 percent and that two years from now, 1-year Treasury bill rates will increase to 3.00 percent. The liquidity premium on 2-year securities is 0.15 percent and on 3-year securities is 0.25 percent. If the liquidity premium theory is correct, what should the current rate be on 3- year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) K ices Current rate %

Reference no: EM133119048

Questions Cloud

What is the current bond price-grohl co : Grohl Co. issued 10-year bonds a year ago at a coupon rate of 8 percent (APR). The bonds make semiannual payments. If the YTM on these bonds is 10 percent (APR)
The nature of work and jobs is changing : The nature of work and jobs is changing. Describe some reasons for the changes and how they are affecting HR management and organizations.
What amount would be shown on the balance sheet : A dividend of $24,000 was paid to the stockholders of Warren Enterprises. What amount would be shown on the balance sheet for Retained Earnings
What is the market value : What is the market value of a $1,000 face-value perpetual bond with a 6% annual coupon rate when the market's rate of return is 8%?
Liquidity premium theory : One-year Treasury bills currently earn 2.30 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 2.50 percent and that two ye
Diversify with another property acquisition : Assume you are purchasing an income producing property and are considering the use of debt (i.e. a mortgage) to reduce your equity required. Which of the follow
What do you suggest the company should do : Your company is considering whether it should tender for two contracts (MS1 and MS2) on offer from a government department for the supply of certain components.
What amount would be saved on current taxes : If a person with a 24 percent tax bracket makes a deposit of $6,600 to a tax-deferred retirement account, what amount would be saved on current taxes
Advantage of the payback method of project valuation : Which of the following is not an advantage of the payback method of project valuation

Reviews

Write a Review

Finance Basics Questions & Answers

  Calculate john''s portfolio weights and returns

The following year, IBM stock is trading at $104 per share while the real estate shares trade at $23.50. Calculate John's portfolio weights and returns.

  What is the current stock price

Put-Call Parity A put option and a call option with an exercise price of $55 and three months to expiration sell for $2.90 and $6.20, respectively. If the risk-free rate is 4.2 percent per year, compounded continuously, what is the current stock p..

  What is the interpretation of your results

Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the U.S. dollar versus the British pound using European term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your re..

  Calculate the market value-book value ratio

Price and number of shares outstanding (listed shares outstanding) can be found on the 'quote' tab. Click on the 'financials' tab and look for the balance sheet

  What will be each bond price

a) Consider the three bonds described here. BON AMAN BON DAMAI BON SENTOSA Maturity 10 year 10 year 20 year

  Which rate offers the lowest cost

Suppose that you can subscribe to a magazine using either a one-year rate of $22, a two-year rate of $42, or a three-year rate of $60. If want to receive this magazine for three years and if your opportunity cost of funds is 12%, which rate offers..

  Define typical causes of failures in corporate governance

Emerging Markets Corporate Governance ­Failures. It has been claimed that failures in corporate governance have hampered the growth and profitability.

  General principles of underlying forwards

Explain the general principles of underlying forwards, futures, and swaps. Include in your answer:

  Money in the old portfolio

You have a portfolio with a beta of 2.29. What will be the new portfolio beta if you keep 30 percent of your money in the old portfolio and 70 percent in a stock with a beta of 2.54?

  Share of common stock

McCall Corporation has a capital structure consisting of 55 percent common equity, 30 percent debt, and 15 percent preferred stock.

  Compute the duration for bond c

Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8%, so the prices of bonds A and B are $1,000 and $1,268 respectively.

  Net present value of the norwegian project

Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK):

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd