What are the interest rate today on a two year bond

Assignment Help Macroeconomics

Reference no: EM13204312

Suppose that the interest rate on a one year bond is 7 percent today and the intrest rates are exected on one yea bonds in the future are 6 percent in one year, 5 percent in two years, and 4 percent in three years.

a) According tothe expecations theory of the term structure, what are the interest rate today on a two year bond, a three year bond, and a for year bond?

b) If the term premium is equal to half a percent times the number of years to maturity of a bond for times to maturity of two, three, and four years, what are the interest rates today on a two year bond, a three year bond, and a four year bond

Reference no: EM13204312

Questions Cloud

Compute the wacc for the financing scenario : Tiffany Baking Co. wants to arrange a $50 million in capital for manufacturing a new consumer product. The current financing plan is 60% equity capital and 40% debt capital. Compute the WACC for the following financing scenario.

State the bottom of a storage tank at a rate : the bottom of a storage tank at a rate of r(t) = 200-4t liters per minute, where 0≤ t ≤ 66. Find the amount of water that flows from the tank during the first 66 minutes.

How do rent control policies alter incentives for consumers : Explain the purpose of rent control and the intended effect on consumers and suppliers of rental property. Does rent control achieve its purpose Using the Internet or the Virtual Library, give some detail regarding real-world experiments in rent cont..

Explain minimize the length of the fold : How would you fold it so as to minimize the length of the fold? In other words, how would you choose x to minimize y?

What are the interest rate today on a two year bond : If the term premium is equal to half a percent times the number of years to maturity of a bond for times to maturity of two, three, and four years, what are the interest rates today on a two year bond, a three year bond, and a four year bond.

Define sand falling from a chite forms a conical pile : Sand falling from a chite forms a conical pile whose hieght is always equal to 4/3 the radius of the base. how fast is the volume changing when the radius of the base

Determine what is the secuity worth : Suppose that the two years have elapsed since you purchased the security, and you hve recieved the first two payments of $600 each. Now suppose the market interest rate suddenly jumps to 10%. How much would another investor be willing to pay for y..

Explain the lifetime of an automatic transmission produced : The lifetime of an automatic transmission produced by the BW Company is normally distributed with a mean of 100,000 miles and a standard deviation of 20,000 miles.

What should an investor buy to yield the largest steam : You are given the following information on the bond market: Money available on January 1, 2004: one thousand dollar interest rates on January 1, 2004, on bonds of different maturities: 1 year, 4%; 2 year, 5%; 3 year, 5.5%; 4 year, 6%

User Account

All Pages