Federal reserve system forecast, Financial Management

A. Joe wants to invest in Nebraska Municipal 6% GOB that are rated AA. Joe's tax rate is usually between 28% .  GE plans to sell AA rated 8% coupon bonds. Compute Joe's after-tax income,  if Joe invests in GE bond.

B. Suppose that Joe's tax rate is 40%. What is the coupon rate of corporate bonds which yields exactly 6% in after-tax income, assuming that both bonds are high grades with no default risk.

The current one year interest rate is 0.0430.  Economists at Federal Reserve System  forecast that one year interest rates expected at t=1,2,3,4 will be following for the next five years

              one year rate    

t             Expected  at t        liquidity premium

-------------------------------------------------

-------------*

0            0.0430                     0.0000

1            0.0513                     0.0020

2            0.0535                     0.0020

3            0.0635                     0.0025

4            0.0715                     0.0030

A. Use the exact expectation theory, forecast the following

          The interest rate on a two year loan

          The interest rate on a three year loan

          The interest rate on a four year loan

          The interest rate on a five year loan

B. Suppose that you believe in the liquidity premium theory of Mishikin, what  will be the revised interest rates  on a two year loan, on a three year loan, on a four year loan, and on a five year loan

C. Suppose that you use the average rather than the geometric mean.  What are the rates on the following:

               Two year loan

               Three year loan

               Four year loan

               Five year loan

Posted Date: 3/2/2013 7:31:07 AM | Location : United States







Related Discussions:- Federal reserve system forecast, Assignment Help, Ask Question on Federal reserve system forecast, Get Answer, Expert's Help, Federal reserve system forecast Discussions

Write discussion on Federal reserve system forecast
Your posts are moderated
Related Questions
Sapp Trucking's balance sheet illustrates a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%.  This debt presently has a


Future V alue The value of an investment is based on the rate of interest paid at set time periods and at some point in the future. Future values incorporate both the i

Determination of spread Daily interest rate = 5.11/ 365 = 0.014% per day Variance of cash flows = 1000 × 1000 = $1000000 per day Transaction cost = $18 per transaction

Alternative summarised version of tests of controls · Segregation of duty (staff records are separate from wages department) · Documentation ( written evidence ) ·

QUESTION 1 [25 marks] Xelo Ltd, whose current sales consist of fixed operating costs of R140 000 and variable operating costs equal to 22% of sales, has made the following two sale

There are several methods available to forecast yield volatility. But before that, let us look into the calculation of forecasted standard deviation. Assume th

What role does depreciation play in calculating incremental cash flows? Depreciation expense is a tax deductible expense and hence influences cash flow by its effect on taxes.Dep

Suppose you have recently been contracted as a financial consultant to a London-based engineering company, Alpha Products Plc. The company uses three components as part of their pr

How does continuous compounding benefit an investor? The effect of enhancing the number of compounding periods per year is to increase the future value of the investment.  The