Business, 26.10.2021 23:30 korban23

You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve, you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The -Select- theory states that the shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of expectations for future interest rates and that they are indifferent to maturity because they don't view long-term bonds as being riskier than short-term bonds. For example, assume that you had a 1-year T-bond that yields 1.8% and a 2-year T-bond that yields 2.1%. From this information you could determine what the yield on a 1-year T-bond one year from now would be. Investors with a 2-year horizon could invest in the 2-year T-bond or they could invest in a 1-year T-bond today and a 1-year T-bond one year from today. Both options should yield the same result if the market is in equilibrium; otherwise, investors would buy and sell securities until the market was in equilibrium. Quantitative Problem: Today, interest rates on 1-year T-bonds yield 1.8%, interest rates on 2-year T-bonds yield 2.1%, and interest rates on 3-year T-bonds yield 3.7%. a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediate calculations.
b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediate calculations.
c. If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediate calculations.

Answers: 1

Show answers

Another question on Business

Business, 22.06.2019 11:40

Select the correct answer brian wants to add a chart to his dtp project. what is the best way he can do this? a draw the chart using the dtp program draw option b create the chart in a spreadsheet then import it c. use the dtp chart wizard to create the chart within the dtp d. create an image of the chart in an image editor then import the image e use html code to create a chart within the dtp program

Answers: 3

Answer

Business, 22.06.2019 19:50

The interaction of individual choices because a type of fish is on the verge of extinction, the government imposes rules that prohibit fishing in the publicly owned spawning grounds. at first owners of fshing bouts complain about this restriction on where they can fish, but soon they notice that the number of adult fish swimming outside the protected area is much higher than it was before. with the restriction, each fishing boat ends up catching more fish than it did before the r which of the following principles of economic interaction best describes this scenario? o there is a tradeoff between equality and efficiency o markets usually lead to efficiency. o when markets do not achieve efficiency,government intervention can improve overall welfare o markets allocate goodseffectively

Answers: 1

Answer

Business, 22.06.2019 20:00

Modern firms increasingly rely on other firms to supply goods and services instead of doing these tasks themselves. this increased level of is leading to increased emphasis on management.

Answers: 2

Answer

Business, 23.06.2019 06:40

Acollege career counselor working at a community college is part of what career area? a. administration b. professional support services c. teaching and training d. guidance counseling

Answers: 2

Answer

You know the right answer?

You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield...

Questions