Suppose that the expected rate on a 1-year security for the beginning of year 3 is 3.10%. According to the liquidity preference theory, what is the liquidity premium for year 3?
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- 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%Question 2: Given the interest rate determinants information below: Scenario A Scenario B Average expected inflation (IP) 4% 8% Risk-free rate of return (Rf) 1.75% 3% Default Risk Premium (DRP) 1.1% 0.6% Maturity risk premium (MRP) .008 x (t – 1) .006 x (t – 1) Determine the Nominal interest rate (INOM) on 10 years’ (t) security for both the scenarios to decide whether Scenario A or Scenario B is better.Suppose we observe the following rates: 1R1= 0.75%, 1R2=1.20%, 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?
- which one is correct please confirm? QUESTION 21 If the return on U.S. Treasury bills is 7.02%, the risk premium is 2.32%, and the inflation rate is 4.16%, then the real rate of return is ____. a. 7.02% b. 6.48% c. 4.70% d. 2.86%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 rateok t Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 0.65% E(201) = 1.80 % L2 = 0.04% E(301) = 1.98% L3 = 0.08% E(471) = 2.20% L4 = 0.10% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Years 1 2 3 4 Current (Long- Term) Rates % % % %
- The following data are gathered for: · The real risk-free rate is 1.25% · Inflation premium is constant at 2.50% · Default risk premium is 5% · Liquidity risk premium is 0.50% What is the quoted rate on a short-term government security? (Format: X.XX%)Q. 16 Consider a security with a duration of 7 years. The current interest rate level is 10% p.a. How does the price of the security change if interest rates increase by 1.5% (round your answer to two decimals) ? Choose the correct option The price of the security will decrease by 1.5%. The price of the security will increase by 1.5%. The price of the security will decrease by 8.5%. The price of the security will increase by 9.55%. The price of the security will decrease by 9.55%.Question 2: Answer the following Tiwo questions: (CLO-2) 1 a. A two-year Treasury security currently earns 1.94%. Over the next two years, the real risk-free rate is expected to be 1.00% per year and the inflation premium is expected to be 0.50% per year. Calculate the maturity risk premium on the two-year. Answer:
- 6-11 Liquidity Premium Theory Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 0.65% E(2r1) 1.75% L2 0.05% %3D E(3r1) 1.85% L3 0.10% E(4r1) 2.15% L4 0.12% Using the liquidity premium theory, plot the current yield curve. Make sure you label the axes on the graph and identify the four annual rates on the curve both on the axes and on the yield curve itself. (LG6-7 2 )Real risk-free rate (r") = 3.0% Expected inflation rates: Year 1 = 3.0 % , Year 2-3.5%, Year 3 = 4.0%, Year 4- 4.0%, Year 5 and after = 4.5% - Liquidity premium (LP) - 0.5% IM Maturity risk premium (MRP) = 0.05 x (t-1)% Default risk premium (DRP) = 2.5% What is the corporate bond yield spread? 3.50% O 3.00% 2.45% 5.5%Suppose we observe the following rates: 1R1 = 4.1%, 1R2 = 4.9%, and E(21) = 4.1%. If the liquidity premium theory of the term structur of interest rates holds, what is the liquidity premium for year 2? (Round your intermediate calculations to 5 decimal places and fina percentage answer to 2 decimal places. (e.g., 32.16)) Liquidity premium for year 2 %