Problem 6-13 Unbiased Expectations Theory (LG6-7) Suppose we observe the following rates: 1R₁ = 8%, 1R2 = 10%. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year interest rate expected one year from now, E(21)? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).

Problem 6-13 Unbiased Expectations Theory (LG6-7) Suppose we observe the following rates: 1R₁ = 8%, 1R2 = 10%. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year interest rate expected one year from now, E(21)? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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ook int ences Problem 2-11 (LG 2-7) Suppose we observe the three-year Treasury security rate (13) to be 4.9 percent, the expected one-year rate next year-E(21)-to be 5.4 percent, and the expected one-year rate the following year-E(31)-to be 6.4 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places. (e.g., 32.16)) _________% One-year Treasury security rate
Suppose we observe the following rates: 1R1 = 10%, 1R2 = 12%. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year interest rate expected one year from now, E(2r1)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Assume that you must estimate what the future value will be two years from today using the future value of 1 table. (PV of $1, EV of $1. PVA of $1, and FVA of $1) Which interest rate column and number-of-periods row do you use when working with the following rates? (Round percentage answers to 2 decimal places.) Answer is complete but not entirely correct. Number of Periods 1. 12% annual rate, compounded annually 2.8% annual rate, compounded semiannually 3. 12% annual rate, compounded quarterly 4. 12% annual rate, compounded monthly Interest Rate 12.00 2.00 3.00 1.00 % % % % 2 80 24
QUESTION 1 Suppose that the current one-year rate and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: IRI-2.47%, E(2rl)-3.11%, E(3rl)-4.23%, E(4rl)-5.18% Using the unbiased expectations theory, calculate the current rate for three-year- maturity Treasury securities (Write your answer in percentage not decimal for example 5.78%) current rate for three-year-maturity = 3.27%
Only typed answer Suppose that the current 4-year treasury security rate is 5.5 percent and the 1-year treasury rate is 3.75 percent. According to the unbiased expectations theory, what should be the 3-year expected rate 1-year from now? Group of answer choices 6.09% 6.39% 5.88% 4.74%
Given the following, construct a choice table for interest rates from 0% to 100%. Year X Y 0 −$10 −$20 1 15 28
The two-year interest rate is 11.2% and the expected annual inflation rate is 5.6%. a.What is the expected real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-1. If the expected rate of inflation suddenly rises to 7.6%, what does Fisher’s theory say about how the real interest rate will change? multiple choice Real rate increases Real rate does not change Real rate decreases b-2. If the expected rate of inflation suddenly rises to 7.6%, what will be the new nominal rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Classify the following event as mostly systematic, mostly unsystematic: "Short-term interest rates increase unexpectedly" a. Systematic b. Unsystematic Calculate the arithmetic mean return of the following returns Date Return 11/01/2018 9.25% 11/14/2018 6.51% 12/01/2018 -4.61% 12/14/2018 9.14% NOTE: Enter the PERCENTAGE number rounding to two decimals. If your decimal answer is 0.034576, your answer must be 3.46. DO NOT USE the % sign
(Inflation and interest rates) Assume the expected inflation rate is 4.4 percent. If the current real rate of interest is 6.8 percent, what should the nominal rate of interest be? Question content area bottom Part 1 The nominal rate of interest should be enter your response here%. (Round to two decimal places.)
The two-year interest rate is 10.8% and the expected annual inflation rate is 5.4%. a.What is the expected real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-1. If the expected rate of inflation suddenly rises to 7.4%, what does Fisher’s theory say about how the real interest rate will change? multiple choice Real rate does not change Real rate increases Real rate decreases b-2. If the expected rate of inflation suddenly rises to 7.4%, what will be the new nominal rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Suppose we observe the following rates: 1R1 = 0.75%, 1R2 = 1.20%, and E(2r1) = 0.907%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L2? (Do not round intermediate calculations. Round your answer to 3 decimal places.)
Solve for the unknown interest rate in each of the following (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.): Present Value Years Interest Rate Future Value 300 % s 380 1,394 237,520 4 420 18 45,000 19 44,261 25 703,627 %24

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