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

Common-size statement value, A firm has sales of $6,500, net income of $500...

A firm has sales of $6,500, net income of $500, total assets of $12,000, and total equity of $700. Interest expense is $1000. What will be the common-size statement value of the in

Sales of the firm, The financial ratios of a firm are given:     Current ra...

The financial ratios of a firm are given:     Current ratio    =  1.33   Acid-test ratio   =  0.80   Current liabilities  = 40,000   Inventory turnover ratio = 6    What is the

Create a financial institution’s balance sheet, Question. 1 Using D to...

Question. 1 Using D to assess the interest rate risk of a financial institution's balance sheet Background: Point 1. A business is 'insolvent' when it has negative eq

Stock on tap, Stock on Tap: Most of the players who invest in these sec...

Stock on Tap: Most of the players who invest in these securities are institutions and hence the volumes are high. Considering that these securities are the first choice for ban

What is the floating rate bonds, What is the Floating Rate Bonds (FRBs) ...

What is the Floating Rate Bonds (FRBs) Bonds whose interest payments fluctuate with changes in general level of interest rates and are tied to a basic rate (termed as the refer

Finance, a) Describe five factors that should be taken into account by a bu...

a) Describe five factors that should be taken into account by a businessman in making the choice between financing by short-term and long-term sources.

Forms of dividend, FORMS OF DIVIDEND Cash Dividend Many Companies...

FORMS OF DIVIDEND Cash Dividend Many Companies pay dividend in cash. Often cash dividend may be supplemented by a bonus issue (stock dividend).  When the company chooses

Share holder value maximizations , Question based on Share Holder Value Max...

Question based on Share Holder Value Maximizations ? Hatsun Agro Product limited (HAPL) over the last Five years has shown a steady growth in its sales revenue and profits. The

Define the modigliani and miller theory of dividends, What is the Modiglian...

What is the Modigliani and Miller theory of dividends?  Explain. The Modigliani-Miller theory of dividends states that dividend theory is not relevant.  They state that it is the

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