What is the pure expectations theory

Assignment Help Business Economics

Reference no: EM131241694

Your firm manages money for a professional tennis player Maria Juarez. She has asked you to give her information about what determines the level of various interest rate. Your boss has prepared some questions for you to consider. Please answer the following questions:

1. What is the pure expectations theory? What does the pure expectation theory imply about the term structure of interest rate?

2. Suppose you observe the following term structure for treasury securities (see grid) below, now assume that the pure expectations theory of the term structure is correct. (This implies that you can use the yield curve provided to “back out” the market’s expectations about future interest rates.) What does the market expect will be the interest rate on 1-year securities 1 year from now? What does the market expect will be the interest rate on 3-year securities 2 years from now? Calculate these yields using geometric averages. Maturity Yield 1 year 6.0% 2 years 6.2% 3 years 6.4% 4 years 6.5% 5 years 6.5%

3. Describe how macroeconomic factors affect the level of interest rates. How do these factors explain why interest rates have been lower in recent years?

Reference no: EM131241694

Questions Cloud

What is the graph of indifference curve : Jennifer's preferences are described by the following utility function... U=x^1/2+y^1/2. Does jennifer experince diminishing marginal utility? prove your answer mathematically. What is the graph of Jennifer's indifference curve?

Program that stores a list of all the prime numbers : Use the isPrime function that you wrote in Programming Challenge 21 in a program that stores a list of all the prime numbers from 1 through 100 in a file.

Propelling himself and begins to coast across : A skater with an initial speed of7.23m/s stops propelling himself and begins to coast across the ice, eventually coming to rest. Air resistance is negligible.

Research websites on medicaid : The assignment (8-10 PowerPoint slides) Research websites on Medicaid, Medicare, and CHIP to identify current, emerging policies. Analyze a policy that could affect the implementation of Medicaid, Medicare, and/or CHIP programs at a state or local b..

What is the pure expectations theory : Your firm manages money for a professional tennis player Maria Juarez. She has asked you to give her information about what determines the level of various interest rate. What is the pure expectations theory? What does the pure expectation theory imp..

Illustrate the time-distance relationship : Jo-Jo will illustrate the time-distance relationship of free fall by steppig off a high, vertical cliff with a timer in one hand and a marker in the other. For each second of fall he makes a mark on the cliff face.

The budget constraint for the consumer analysis : Write down the utility function and the budget constraint for the consumer analysis.

Briefly explain internal and external economies of scale : State and briefly explain internal and external economies of scale. Also, distinguish between two types of agglomeration economies (urbanization and localization) by giving examples of such from your general knowledge of the subject. - Justify the pr..

Cable operator charter communications : Cable operator Charter Communications Inc. arranged to overpay Scientific Atlanta and Motorola $20 for each set-top box it purchased with the understanding that they would return the overpayment by purchasing cable advertising from Charter.

User Account

All Pages