Inflation rate is likely after year 1, Financial Management

a) Suppose that the real risk-free rate, r*, is 3% and that inflation is assumed to be 7% in Year 1, 5% in Year 2, and 4% after that. Suppose also that all Treasury securities are highly liquid and free of default risk. If 2-year and 5-year Treasury notes both yield 10%, what is the dissimilarity in the maturity risk premiums (MRPs) on the two notes; that is, what is MRP5 minus MRP2?

b)  Because of a recession, the inflation rate likely for the coming year is only 4%. Though, the inflation rate in Year 2 and thereafter is likely to be constant at some level above 4%. Suppose that the real risk-free rate is r* = 2% for all maturities and that there are no maturity premiums. If 3-year Treasury notes yield 2 percentage points more than 1-year notes, what inflation rate is likely after Year 1?

 

Posted Date: 3/30/2013 1:58:16 AM | Location : United States







Related Discussions:- Inflation rate is likely after year 1, Assignment Help, Ask Question on Inflation rate is likely after year 1, Get Answer, Expert's Help, Inflation rate is likely after year 1 Discussions

Write discussion on Inflation rate is likely after year 1
Your posts are moderated
Related Questions
The objective of the assignment is to develop an understanding of the factors that influence changes in the prices of stocks. *A person has $ 100,000 that they have to invest in s

You are still a consultant for the Excellent Consulting Group. You have completed the first assignment, developing and testing a forecasting method based on linear regression (Case

I have a assignment of financial accounting Its a report on company Assignment length 2000 words

Are there any legal factors which could restrict a corporation in its effort to pay cash dividends to common stockholders?  Explain. A firm might be legally restricted as to the

Wealth Maximization :- It is as well termed as value maximization or Net Present worth maximization. This schema is now universally accepted as an appropriate criterion for making

Q. Evaluate Cost of Irredeemable Debt subsequent to tax? Cost of Irredeemable Debt subsequent to tax: - When a company utilizes debt as a source of finance then it saves a cons


Identify the parties by name that have an obligation: a. Buyer/Alpha hears a rumor that the toys have not been manufactured according to the expected specifications for such t

Factors to consider in a takeover/ merger Before a company decides to merge or acquire the following considerations should be taken: Rejection of bid by ta

SECURITIES AND EXCHANGE COMMISSION OF USA In the United States, securities industry is regulated by the United States Securities and Exchange Commission (SEC). It is the govern