Maturity risk premiums on treasury securities rise

Assignment Help Financial Management

Reference no: EM13873573

Suppose the inflation rate is expected to be 6.3% next year, 4.9% the following year, and 2% thereafter. Assume that the real risk-free rate, r*, will remain at 2.3% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds.

Calculate the interest rate on 1-year Treasury securities, 2-year Treasury securities, 3-year Treasury securities, 4-year Treasury securities, 5-year Treasury securities, 10-year Treasury securities, and 20-year Treasury securities. Round your answer to two decimal places.

Reference no: EM13873573

Questions Cloud

Treasury securities and the yield on debt with same rating : In December 1995 Boise Cascade’s stock had a beta of 0.95. The Treasury bill rate at the time was 5.8% and the Treasury bond rate was 6.4%. Assume the term structure of interest gives a 200 bp (basis point – a basis point is 1/100 of a %) spread betw..

Decreasing the portfolio volatility : Start with asset A which has an expected return of 10% and a volatility of 30%. Suppose that we introduce asset B with an expected return of 10% and a volatility of 30%. The correlation between the two asset returns is 0.9. What is the optimal combin..

In the percent of sales method : In the percent of sales method:

What inflation rate is expected after year : Due to a recession, expected inflation this year is only 2.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.25%. Assume that expectations theory holds and the real risk-free rate is r* = 3.5%...

Maturity risk premiums on treasury securities rise : Suppose the inflation rate is expected to be 6.3% next year, 4.9% the following year, and 2% thereafter. Assume that the real risk-free rate, r*, will remain at 2.3% and that maturity risk premiums on Treasury securities rise from zero on very short-..

What are the dangers of ineffective communications : What are the dangers of ineffective communications within a medical office

Search for an academic journal article on globalization : Search for an academic journal (peer-reviewed) article on globalization [ e.g. global warming, international trade, human mobility(immigration), global security, global economic development, etc] and summarize it.

Why is the health insurance portability and accountability : Why is the Health Insurance Portability and Accountability Act

List the steps in the enterprise risk management process : List the steps in the Enterprise Risk Management (ERM) Process

User Account

All Pages