Federal reserve system forecast, Financial Management

Assignment Help:

A. Joe wants to invest in Nebraska Municipal 6% GOB that are rated AA. Joe's tax rate is usually between 28% .  GE plans to sell AA rated 8% coupon bonds. Compute Joe's after-tax income,  if Joe invests in GE bond.

B. Suppose that Joe's tax rate is 40%. What is the coupon rate of corporate bonds which yields exactly 6% in after-tax income, assuming that both bonds are high grades with no default risk.

The current one year interest rate is 0.0430.  Economists at Federal Reserve System  forecast that one year interest rates expected at t=1,2,3,4 will be following for the next five years

              one year rate    

t             Expected  at t        liquidity premium

-------------------------------------------------

-------------*

0            0.0430                     0.0000

1            0.0513                     0.0020

2            0.0535                     0.0020

3            0.0635                     0.0025

4            0.0715                     0.0030

A. Use the exact expectation theory, forecast the following

          The interest rate on a two year loan

          The interest rate on a three year loan

          The interest rate on a four year loan

          The interest rate on a five year loan

B. Suppose that you believe in the liquidity premium theory of Mishikin, what  will be the revised interest rates  on a two year loan, on a three year loan, on a four year loan, and on a five year loan

C. Suppose that you use the average rather than the geometric mean.  What are the rates on the following:

               Two year loan

               Three year loan

               Four year loan

               Five year loan


Related Discussions:- Federal reserve system forecast

Calculate total development cost, A developer has purchased a commercial of...

A developer has purchased a commercial office site in Melbourne and wishes to develop a building which will be sold to an institutional owner before completion of the building.

Leverage, Evaluate the importance of leverage in financial management of a ...

Evaluate the importance of leverage in financial management of a small scale company

What typ, how would you judge the potential profit of bajaj electronics on ...

how would you judge the potential profit of bajaj electronics on the first year of sales to booth plastics and give your views to increase the profit ?

Illustration of total return on investment, Illustration  An inve...

Illustration  An investor with a 1-year investment horizon purchases a 20-year 5% corporate bond. The prevailing price of the bond is Rs.82.3488 for a yield of 6.2%

Call provisions, The issuer's right to call back the issue before the...

The issuer's right to call back the issue before the maturity date is referred to as a "call provision". In case of asset-backed securities, the trustee is grante

Find out covariance between the two stocks, The stocks of Microsoft and Ap...

The stocks of Microsoft and Apple have a correlation coefficient of 0.6.  The variance of Microsoft stock is 0.4 and the variance of Apple stock is 0.3.  What is the covariance bet

Eurodollar, Eurodollar U.S. currency held on deposit in banks located ...

Eurodollar U.S. currency held on deposit in banks located outside the United States, mainly in Europe. Eurodollars are mostly used for settling international transactions outs

What are the operating and financing decisions of any firm, A firm's operat...

A firm's operating and financing decisions   Risk also results from decisions made within the company.  This risk is usually divided into two classes:  - Business risk is th

Quarterly earnings studies, Quarterly Earnings Studies The Quarterly Ea...

Quarterly Earnings Studies The Quarterly Earnings Studies are a part of time-series analysis. These studies aim at predicting future returns for a stock based on publicly avail

Write Your Message!

Captcha
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