The Wall Street Journal reports that the rate on 5-year Treasury securities is 5.35 percent and the rate on 6-year Treasury securities is5.60 percent. The 1-year interest rate expected in five years is, E(6/1), is 6.20 percent. According to the liquidity premium hypotheses,what is the liquidity premium on the 6-year Treasury security, L6? (Do not round intermediate calculations. Round your final answerto 2 decimal places.)

5-year treasury securities = 5.35% 6 -year treasury securities = 5.6% 1 - year interest rate…

Answered: The Wall Street Journal reports that…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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One-year Treasury bills currently earn 3.60 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.80 percent. The liquidity premium on 2 - year securities is 0.05 percent. If the liquidity premium theory is correct, what should the current rate be on 2 - year Treasury securities? Note: Do not round intermediate calculations. Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R₁ = 4.80%, E(2r₁) = 5.45%, E(3r₁) = 5.95%, E(41) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? A. 5.57% B. 5.62% C. 5.83% D. 6.10%
One-year Treasury bills currently earn 3.80 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 4.00 percent. The liquidity premium on 2-year securities is 0.09 percent. If the liquidity theory is correct, what should the current rate be on 2-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The Wall Street Journal reports that the rate on three-year Treasury securities as 1.20 percent and rate on five-year Treasury securities is 2.15 percent. According to the unbiased expectations theory, what does the market expect the two-year Treasury rate to be three years from today, E (3r2)?
The Wall Street Journal reports that the rate on a four-year Treasury securities is 1.6 percent and the rate on a five-year Treasury securities is 2.15 percent. According to the unbiased expectations theory, what does the market expect the one-year Treasury rate to be four years from today, E(5r1)?
One-year T-bills currently earn 0.46 percent. You expect that one year from now, one-year T-bill rates will increase to 0.50 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Current rate on two-year Treasury securities
The Wall Street Journal reports that the rate on 3-year Treasury securities is 1.50 percent and the rate on 5- year Treasury securities is 2.45 percent. According to the unbiased expectations theory, what does the market expect the 2-year Treasury rate to be three years from today, E(3/2)? (Do not round intermediate calculations and round your answer to 2 decimal places.) Treasury rate %
Suppose that the current three-year rate (three-year spot rate) and expected one- year T-bill rates over the following years are as follows: 1 R3 = 12% E(271) = 8% E(371) = 10% Using the unbiased expectations theory, calculate the current rates for one- and two-year maturity Treasury securities, i.e., 1 R₁ and 1 R2. Convert your answers to percentages. 1R1 = 17.39%; 1R2 = 12.56% O 1R1 = 20.73; 1R2 = 11.49% O 1R1 = 18.26%; 1R2 = 13.01% O 1R1 = 19.52; 1R2 = 14.74%
One-year Treasury bills currently earn 2.25 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 2.45 percent and that two years from now, 1-year Treasury bill rates will increase to 2.95 percent. The liquidity premium on 2-year securities is 0.05 percent and on 3-year securities is 0.15 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities?
One-year Treasury bills currently earn 2.90 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.10 percent and that two years from now, 1-year Treasury bill rates will increase to 3.60 percent. The liquidity premium on 2-year securities is 0.05 percent and on 3-year securities is 0.15 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The Wall Street Journal reports that the rate on 6-year Treasury securities is 1.30 percent and the rate on 7-year Treasury securities is 1.85 percent. According to the unbiased expectations theories, what does the market expect the 1-year Treasury rate to be six years from today, E(7r1)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider a 1-year treasury bill that currently earns 3.25%. The increase in rates for the above bill is shown as follows: Year Increase in rate 1 year from now 3.6% 2 years from now 3.85% The liquidity premium is as follows: 2-year securities 3-year securities 0.07% 0.15% Assume that if the liquidity premium theory is correct. Calculate the current rate on 3-year Treasury securities.

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