Given the following data, find the expected rate of inflation during the next year. r real risk-free rate 2.20%. Maturity risk premium on 10-year T-bonds 2%. It is zero on 1-year bonds, and a linear m relationship exists. 3.0% Default risk premium on 10-year, A-rated bonds 1.5%. Liquidity premium = 0%. Going interest rate on 1-year T-bonds = 4.80%. 2.2% B O2.8% O2.6% 2.4%
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- given the following data, find the expected rate of inflation during the next year. * = real risk-free rate = 2.00% maturity risk premium on 10-year t-bonds 2%. it is zero on 1-year bonds, and a linear relationship exists. default risk premium on 10-year, a-rated bonds = 1.5%. liquidity premium = 0%. going interest rate on 1-year t-bonds 5.00% o 24% o 2.1% o 27% o 3.3% o 3.0%The outstanding bonds of Winter Tires Inc. provide a real rate of return of 3.2 percent. If the current rate of inflation is 2.1 percent, what is the actual nominal rate of return on these bonds?Suppose 2-year Treasury bonds yield 4.1%,while 1-year bonds yield 3.2%. r* is 1%, and the maturity risk premium is zero.a. Using the expectations theory, what is the yield on a 1-year bond, 1 year from now?Calculate the yield using a geometric average.b. What is the expected inflation rate in Year 1? Year 2?
- Suppose the real risk-free rate of interest is 2%. Inflation is expected to be 2% for 2 years and then 3% thereafter. The maturity risk premium is 0.2% (t). where t is the number of years until maturity. The default risk premium is 2%. The liquidity premium is 1%. What is the nominal interest rate on a 4 year bond? 9.1% 7.8% 7.1%Assume that the real risk-free rate is 2% and that the maturityrisk premium is zero. If a 1-year Treasury bond yield is 5% and a 2-year Treasury bondyields 7%, what is the 1-year interest rate that is expected for Year 2? Calculate this yieldusing a geometric average. What inflation rate is expected during Year 2? Comment onwhy the average interest rate during the 2-year period differs from the 1-year interestrate expected for Year 2.Suppose the real risk-free rate of interest is r=4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next two years and 3.90% per year for the next three years. The maturity risk premium is 0.1 x (t-1) %, where t is number of years to maturity, a liquidity premium is 0.45%, and the default risk premium for a corporate bond is 1.40%, The average inflation during the first 4 years is What is the yield on a 4-year Treasury bond? O 6.75% O 8.90% O 4.30% O 7.05% What is the yield on a 4-year BBB-rated bond? O 7.50% O 7.05 % O 8.45% 8.90% If the yield on a 5-year Treasury bond is 7.38% and the yield on a 6-year Treasury bond is 7.83%, the expected inflation in 6 years is (Hint: Do not round intermediate calculations.)
- The risk free rate of interest is 2.0%. Inflation is expected to be 8.0% this year, 6.5% next year and 2.5% in each of the following years. Assume the liquidity premium is fixed at 0.5%; maturity riskpremium is calculated to be .1% x (t-1); and default risk premium is fixed at 1.5% for years 1-5 and 2% for years 6-20. Calculate the rate for the following:a) A 9 year bond?b) A 2 year bond? Please do it in excel show the fomulas pleaseAssume that the real risk-free rate of return, k*, is 3%, and it will remain at that level far into the future. Also assume that maturity risk premiums (MRP) increase from zero for bonds that mature in one year or less to a maximum of 1%, and MRP increases by 0.2% for each year to maturity that is greater than one year-that is, MRP equals 0.2% for two-year bond, 0.4% for a three-year bond, and so forth. Following are the expected inflation rates for the next five years: Year Inflation Rate (%) 2017 5 2018 6 2019 7 2020 8 2021 9 a) Compute the interest rate for a one-, two-, three-, four-, and five-year bond. b) If inflation is expected to equal 9% every year after 2021, what should be the interest rate for a 10- and 20-year bond? c) Plot the yield curve for the interest rates you computed in part [a] and [b]. d) Based on the curve (in part c), interpret your findings.Assume that the real risk free rate is 2% and the average expected inflation rate is 3% for each future year. The default risk premium and the liquidity premium for bond x are each 1% and the applicable Maturity Risk premium is 2% what is bond x’s interest rate. Round to 2 decimal places
- Suppose the real risk-free rate is 2.5%, the average future inflation rate is 2.3%, a maturity premium of 0.07% per year to maturity applies, i.e., MRP = 0.07% (t), where t is the years to maturity. Suppose also that a liquidity premium of 1% and a default risk premium of 0.7% applies to A-rated corporate bonds. How much higher would the rate of return be on a 7-year A-rated corporate bond than on a 5-year Treasury bond. Here we assume that the pure expectations theory is NOT valid. O 1.84% O 1.64% O 1.44% O 1.24% 1.04%The real risk-free rate is 3.05%, inflation is expected to be 2.75% this year, and the maturity risk premium is zero. Ignoring any cross-product terms, what is the equilibrium rate of return on a 1-year Treasury bond?The real risk-free rate of interest, r*, is 4 percent, and it is expected to remain constant over time. Inflation is expected to be 2 percent per year for the next three years, after which time inflation is expected to remain at a constant rate of 5 percent per year. The maturity risk premium is equal to 0.1(t - 1)%, where t = the bond’s maturity. What is the yield on a 10-year Treasury bond?