Reference no: EM131965975
On January 17, 2018, the U.S. Treasury Resource Center for interest rates reports the following current (spot) Treasury bond rates:
5-year bond rate = 2.25% and
10-year bond rate = 2.46%
1. Under the expectations theory,
(a) what is the expected 5-year bond rate (forward rate) 5 years from now?
(b) Based on your answer, what are rates expected to do (rise/fall/stay the same)? Explain why
2. Suppose there is a liquidity premium of 0.20% for a 10-year bond and 0.10% for a 5-year bond, under the liquidity premium theory (adjusting for liquidity premiums incorporated in bond rates)
(a) What is the new expected 5-year bond rate 5 years from now?
(b) Based on your answer, what are rates expected to do (rise/fall/stay the same)?
(c) Explain why and why the expected rate under the liquidity premium theory differs from that of the expectations theory.
3. Market Segmentation Theory
(a) Briefly explain the market segmentation theory.
(b) Suppose the U.S. Treasury issues a large quantity of long-term 10-year Treasury bonds, under the market segmentation theory, what would be the effect of this issue on respectively short-term and long-term interest rates based on the segmentation theory.
|
How do you think the courts would rule
: What do you think would be the best course of action, and how do you think the courts would rule should the issue appear before them?
|
|
What is the effect of the consulting services expense
: Deerfield Hospital incurs consulting services expense of $500,000 on December 30, 2015. The supplier's invoice states that the $500,000 is due by January 10.
|
|
What is considered to be modern extinction
: What is considered to be modern extinction? What was the range found for modern extinction rate in relation to background extinction rates?
|
|
How to produce the after-tax cash inflows
: Deep Waters, Inc. is using the internal rate of return (IRR) when evaluating projects. Find the IRR for the company's project.
|
|
Under the expectations theory
: Under the expectations theory, adjusting for liquidity premiums incorporated in bond rates.
|
|
Find the net present value of the project in pounds
: DEF (British firm) is considering investing in a three year project that costs 150,000 pounds. DEF expects to receive 25,000 pounds and 50,000 dollars each year
|
|
Prepare a short powerpoint about the given organization
: Choose an environmental organization, and prepare a short PowerPoint (3-4 slides) about that organization to share with your classmates.
|
|
How much does the firm need to deposit today
: Delph Cosmetics has a $130,000 liability it must pay four years from today. The company is opening a savings account so that the entire amount will be available
|
|
What would be the price of the corporate bond
: If there is no change of default what would be the price of this corporate bond? Hint: if there is no chance of default, then the required rates of return.
|