What is the annual rate of return

Assignment Help Business Economics
Reference no: EM133064188

Suppose the pure expectations theory of the term structure is correct. You can buy a 2-year discount bond with face value of $1500 for $1360.54. You plan to sell it next year for a price you expect will be $1456.31

a. What is the annual rate of return on 2-year bonds? Explain.

b. What is the rate of return on 1-year discount bonds you expect will hold next year? Explain.

c. What is the rate of return on 1-year discount bonds today? Why?

d. Suppose that, contrary to what you found in part c., the current one-year rate was .04 (4%). Explain what forces would move it to the level you found in part c

Reference no: EM133064188

Questions Cloud

Discuss the accounting treatment for the investment property : The account officer has consulted you about the treatment for a property. Discuss accounting treatment for investment property for year ended 30 June 2020
How did marshall solve problem : How did Marshall solve this problem and how did he demonstrate its application
Explain the law of supply : 1. Define and explain the Law of Demand.c. Consumers taste or preferences
What are the differences between the four allocation methods : What are the differences between the four allocation methods (direct, step-down, double apportionment and reciprocal)? Why are the methods important
What is the annual rate of return : Suppose the pure expectations theory of the term structure is correct. You can buy a 2-year discount bond with face value of $1500 for $1360.54.
What the balance in the common shares account : The common shares are currently selling for $15.50 per share. What the balance in the Common Shares account after the distribution of 15% common stock dividend
What is meant by a term premium : What is meant by a "term premium"? What can explain such a premium? Is it a risk premium? Why or why not? In our "roll-over" model of bank liquidity provision,
Implement product differentiation and cost leadership : Discuss the two sides of the argument surrounding whether or not Walmart Inc. can implement product differentiation and cost leadership simultaneously include a
Percentage of the franchisee revenue distort : We noted that royalty payments based on a percentage of the franchisee's revenue distort the franchised firm's incentives; driving up prices and reducing the nu

Reviews

Write a Review

Business Economics Questions & Answers

  Economics assignment

This document contains various important questions and their appropriate answers in the subject field of Economics.

  Demand and supply curves

Economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of the allocation is to maximize the attainment of the ends.

  Long-run perfectly competitive equilibrium for the firm

Evaluate Government intervene and correct this situation?(a) Explain the concept of a concentration ratio. A rise in the price of magarine Explain the impact of external costs and external benefits on resource allocation long-run perfectly c..

  Supply and demand diagrams

Explain each of the following using supply and demand diagrams,  With the use of a graph, explain how these two programs affect cigarette consumption and the price of cigarettes.

  Case study: fisher-price toys

The case study of the Fisher-Price Toys, Inc., a popular case in basic economics and management from the prestigious Harvard Business School.

  Draw the production possibility curve

Draw the production possibility curve and a. Define consumer surplus and producer surplus.

  Tax revenue

The Australian government administers two programs that affect the market for cigarettes

  Maximize total welfare

How many tickets to sell to maximize total welfare.

  Difference between the cv and the ev

The change in consumer surplus (?CS) is not "theoretically" justifiable like the CV and EV but it continues to be the most widely used measure of consumer welfare change. Explain how this can be reconciled

  Depict von neumann-morgenstern utility index u in a diagram

Depict the von Neumann-Morgenstern utility index u in a diagram

  What is the market solution

What is the market solution (market price and quantity) and What is the total surplus of the society under the market solution

  Calculate gross national product and net national product

Calculate gross national product and net national product

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