Could you help me with D 3. Answer all parts of this question.(a) What is the forward rate? What is the relationship between forward rates andthe spot rates? Provide the equation assuming annually compounded ratesover two years.ن -(b) In the market we observe the following term structure of continuously com-pounded spot rates:year to maturity spot rates19.5%28.3%37.5%Compute the forward f(1,2) and f(2,3). [(c) Compute the price and the duration of a bond of maturity 2 years and facevalue 100 USD, which semi-annually pays a coupon of 4 USD, assuming theyield to maturity is 5% continuously compounded. [‹(d) Compute the price of the bond in (c) using the term structure of the interestrates in point (b). Assume also i0.5 9.8% and i1.5 is obtained as simpleaverage between i₁ and i2. [=]-

As per instruction question d will be solved. The price of the bond is the PV of all future coupons…

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Could you help me with D

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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a) Suppose that the current one-year spot rate and expected one-year T-bill rates over the following three years (i.e., years 2, and 3 respectively) are as follows: 1R1 = 3.1%, E(201) = 4.20%, E(3r₁) = 6.6%. Using the unbiased expectation theory, calculate the current long-term rates for one- two and three-year-maturity Treasury securities and plot the current yield curve. Please show each step of your calculation. b) What are the sources of funding for commercial banks? Please also classify the sources of funding and briefly describe each category. c) The unbiased expectation theory and liquidity premium theory are two important theories to explain the shape of yield curve. Discuss and compare the two theories.
Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 3.7% r3 = 4.9% What are the following forward rates, where fi₁, k refers to a forward rate for the period beginning in one year and extending for k years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 11,1 f1,2 f1,3 r2 = 4.2% 4.70 % % % r4 = 5.7%
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.)
3a) What is the forward rate? What is the relationship between forward rates and the spot rates? Provide the equation assuming annually compounded rates over two years.
Consider the following spot interest rates for maturities of one, two, three, and four years. r₁ = 4.3% 2 = 4.9% √3 = 5.6% r4 = 6.4% What are the following forward rates, where fkn refers to a forward rate beginning in k year(s) and extending for n year(s)? f2,1 = ? f3,1 = ? f2,2 = ?
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e.. years 2, 3, and 4, respectively) are as follows: 1R1 = 6%, E(21) = 7%, Bar1) = 7.5 %, Bar) = 7.85% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two, three-, and four-year-maturity Treasury securities. (Round your answers to 2 decimal places.) Year 1 2 3 4 Current (Long-term) Rates
Suppose that the current one-year rate (one- year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1=6%, E(2r1) =7%, E(3r1) =7.5% E(4r1)=7.85% 1 Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. Show your answers in percentage form to 3 decimal places.
Suppose that the current 1-year rate ( 1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e years 2,3, and 4 respectively) as follows: 1R1=3.22%, E(2r1)=4.65%,E(3r1)=5.15%,E(4r1)=6.65% Using the unbiased expectations theory, calculate the current (long-term) for one-, two-, three-, and four- year- maturity treasury securities. ( Round your answers to 2 decimal places.)
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (I.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 1%, E(211) = 4.30%, E(31) = 4.80%, E471) = 6.30% Using the unblased expectations theory, calculate the current (longterm) rates for 1-, 2-, 3-, and 4-year-maturity Treasury securities. Plot the resulting yield curve. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Year 1234 Current (Long-term) Rates %
Suppose the current forward curve for one-year rates is the following: Time Period Forward Rate f(0,1) 2.5% f(1,1) 3.6% f(2,1) 4.5% f(3,1) 5.1% Calculate the spot rates for 2-year, 3-years and 4-year spot rates Calculate the forward rates f(1, 2), f(1, 3), and f(2, 2) 3) Use the information to value a 4-year bond that pays 4.5% annual coupons.
Suppose that the current 1-year rate (1-year spot rate) and expected 1-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: 1R1 = 8%, E(2r1) = 9%, E(31) = 9.50%, E(4r1) = 9.85% Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-, three-, and four-year-maturity Treasury securities. (Round your answers to 2 decimal places.)
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