What is the average expected inflation rate over the 5 year

Assignment Help Finance Basics
Reference no: EM13294462

It is January 1, 2008. Inflation currently is about 2 percent; throughout 2007 the Fed took action to maintain inflation at this level. Now the economy is starting to grow too quickly and reports indicate that inflation is expected to increase during the next five years. Assume that at the beginning of 2008, the rate of inflation expected for 2008 is 4 percent; for 2009 it is expected to be 5 percent; for 2010 it is expected to be 7 percent; and for 2011and every year thereafter, it is expected to settle at 4 percent

A. what is the average expected inflation rate over the 5 year period 2008-2012 (use the arithmetic average)
B. what average nominal interest rate would over the 5 year period be expected to produce a 2 percent real risk free rate of return on 5 year treasury securities
C. Assuming a real risk-free rate of 2 percent and a maturity risk premium that starts at 0.1 percent and increases by 0.1 percent each year, estimate the interest rate in January 2008 on bonds that mature in one, two, five, 10, and 20 years. Also, draw a yield curve based on these data.
D. Describe the general economic conditions that could be expected to produce an upward-sloping yield curve.
E. if the consensus among investors in early 2008 had been that the expected rate of inflation for every future year was 5 percent, what do you think the yield curve would have looked like? consider all factors that are likely to affect the curve. does your answer here make you question the yield curve you drew in part c

 

Reference no: EM13294462

Questions Cloud

Calculate the work done by the field on the electron : A uniform electric field of magnitude 395 N/C pointing in the positive x-direction acts on an electron, What is the work done by the field on the electron
What will the dollar amount of sales be in year five : China Manufacturing Agents, Inc. is preparing a five-year plan. Today, sales are $1,000,000. If the growth rate in sales is projected to be 10 percent over the next five years, what will the dollar amount of sales be in year five?
Explain a final volume of naoh and an initial volume : When you are trying to calculate molarity, what volume do you use? I have a final volume of NaOH and an initial Volume and volume of NaOH
What recommendation would you make to aunt tillie : She plans to leave the funds in this account for seven years earning interest. If the goal of this deposit is to cover a future obligation of $65,000, what recommendation would you make to Aunt Tillie?
What is the average expected inflation rate over the 5 year : Assume that at the beginning of 2008, the rate of inflation expected for 2008 is 4 percent; for 2009 it is expected to be 5 percent; for 2010 it is expected to be 7 percent; and for 2011and every year thereafter, it is expected to settle at 4 perc..
Explain sodium dihydrogenphosphate : A phosphate buffer solution (25.00 mL sample) used for a growth medium was titrated with 0.1000 M hydrochloric acid. The components of the buffer were sodium monohydrogenphosphate and sodium dihydrogenphosphate
Find the magnitude of the necessary lifting force : A jet flying at 107 m/s banks to make a horizontal circular turn. The radius of the turn is 3810 m, Calculate the magnitude of the necessary lifting force
How much time is required for the bullet to reach the target : A bullet is fired horizontally with an initial velocity of 865 m/s at a target located 150 m from the rifle. How much time is required for the bullet to reach the target
Why is the present value of an amount to be received : Why is the present value of an amount to be received (paid) in the future less than the future amount?

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Determine new funds needed to finance the growth

Owen's Electronics has 90 operating plants in seven southwestern states. Sales for last year were $100 million, and balance sheet at year end is same in % of sales to that of previous years.

  Indicate which metric is most relevant to an investor

Briefly discuss the differences between the two and indicate which metric is most relevant to an investor who is considering adding another asset to a well-diversified portfolio.

  What is the project net investment outlay at year 0

The machine would have no effect on the firm's sales or revenues, but it is expected to save Kidd $20,000 per year in before-tax operating costs. The standard risk adjustment is 4 percentage points and its corporate cost of capital is 10 percent.

  Explain what is the difference in current market prices

Explain what is the difference in current market prices of the two bonds and the Burger King bond has an annual coupon rate of 8 percent and matures 20 years from today

  Will a callable bond or putable bond have the higher coupon

All things being equal, will a callable bond or a putable bond have the higher coupon? Why?

  Computation of required rate of return using capm approach

Computation of required rate of return using CAPM approach and which security would be the best investment

  What are the companys capital structure weights on a book

What are the company's capital structure weights on a book value basis?

  Currencies of industrialized countries

Why do you think the bid/ask spread is higher for pesos than it is for currencies of industrialized countries. Elucidate how does this affect a U.S. firm which does substantial business in Mexico.

  Calculation of irr, npv of a project with equal cash flows

Calculation of IRR, NPV of a project with equal cash flows through life and what is the project's IRR

  What is this present value of the expected income stream

a real estate investment has the expected year-end annual cash flows: Year 1 $10,000 Year 2 $25,000 Year 3 $50,000 Year 4 %35,000. At a discount of 8% what is this present value of the expected income stream. Hint: Solve for each year's PV then su..

  The henley corporation is a privately held company

Web site. The Henley Corporation is a privately held company specializing in lawncare products and services. The most recent financial statements are shown below.Income Statement for the Year Ending December 31 (Millions of Dollars Except for Per ..

  What is qm weighted average cost of capital

If the cost of common equity for the firm is 18.9%, the cost of preferred strock is 9.3%, the before-tax cost of debt is 7.9% , and the firm's tax rate is 35%,what is QM's weighted average cost of capital?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd