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A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury bond has an interest rate of 2.5 percent. A maturity risk premium is estimated to be 0.2 percentage points for the longer maturity bond. Investors expect inflation to average 1.5 percentage points over the next ten years.
a. Estimate the expected real rate of return on the ten-year U.S. Treasury bond.
b. If the real rate of return is expected to be the same for the thirty-year bond as for the ten-year bond, estimate the average annual inflation rate expected by investors over the life of the thirty-year bond.
Prepare a statement of cash flows for 2013, using the indirect method. Assume that current assets (excluding cash) and current liabilities have remained the same on December 31, 2013.
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Which of the following had the greases ex-post returns based on historic sample measures?
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The risk-free rate of return is currently 0.05, whereas the market risk premium is 0.07. If the beta of RKP, Inc., stock is 1.7, then what is the expected return on RKP?
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