Difference in face value-current market price of securities

Assignment Help Financial Management
Reference no: EM131177965

Currently, yields to maturity on 1 year and 2 year us treasury securites are .602% and .852%. You can assume that for simplification purposes there are no coupon payments on these bonds and the yield to maturity is entirely due to the difference in face value and current market price of these securities.

a) If financial market investors were risk neutral, what would this data imply about market expectations of the yield on the 1 year bonds 1 year from now? Show your Calculations.

b) Given that financial market investors are risk averse, do you think actual market expectations differ slightly from your answer to (a). If so, how? Explain your answer.

Reference no: EM131177965

Questions Cloud

Downward sloping yield curve generally indicates : If a project has more than one negative net cash-flow a problem with using the IRR method to evaluate the project is that. The periodic cash-flows from an investment in shares are called. A downward sloping yield curve generally indicates
Calculate the present value of the investment : Let $1000 be invested at the end of each year in perpetuity. The interest rate is 8% per year. (a) Calculate the present value (PV) of the investment to the nearest cent after : (i) 1 year (ii) 10 years (iii) 50 years (iv) 100 years
Creates retirement fund by depositing payments : A man creates a retirement fund by depositing payments at the end of each month for 20 years. For the first 10 years the deposits are 100 per month and for the last 10 years the deposits are 200 per month. The annuity earns a nominal rate of 9% conve..
Spend today to exactly match his desired cash flows : An investor would like to have $5,000 available at the end of each of the next 3 years. He has a choice of 3 bonds to invest in, each with a par value of $1,000: How much of each bond will he need to spend today to exactly match his desired cash flow..
Difference in face value-current market price of securities : Currently, yields to maturity on 1 year and 2 year us treasury securites are .602% and .852%. You can assume that for simplification purposes there are no coupon payments on these bonds and the yield to maturity is entirely due to the difference in f..
Combines the risk-free asset and the market portfolio : A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7.2 percent and a standard deviation of 10.2 percent. The risk-free rate is 4.2 percent, and the expected return on the market portfolio is 12.2 percent...
Cash flow problems : Roofling Company paid wages of $319,600 this year. Of this amount, $193,900 was taxable for net FUTA and SUTA purposes. The state's contribution tax rate is 4.3% for Roofling Company. Due to cash flow problems, the company did not make any SUTA payme..
What must the expected return on the market : A stock has an expected return of 10 percent, its beta is 1.10, and the risk-free rate is 4 percent. What must the expected return on the market be?
What is mitchells target fixed assets and sales ratio : Beasley Industries' sales are expected to increase from $5 million in 2013 to $6 million in 2014, or by 20%. Its assets totaled $3 million at the end of 2013. Beasley is at full capacity, so its assets must grow in proportion to projected sales. What..

Reviews

Write a Review

Financial Management Questions & Answers

  What was yield to maturity

On December 20, 1994 the Nippon Telegraph & Telephone Corporation (NTT) issued ¥1 billion of 10-year debentures due December 20, 2004. The debentures carried a 4 3/4% coupon. What was the yield to maturity of NTT’s debentures at the time of issuance?..

  Is it better off to pay a loan monthly or annually

Assume a car loan amount of $100,000, with annual interest rate 3% and 5 years term. Calculate annual payment amount. Calculate monthly payment amount. Is it better off to pay a loan monthly or annually? Why?

  Expecting a period of intense growth

Beatrice Markets is expecting a period of intense growth and has decided to retain more of its earnings to help finance that growth. As a result, it is going to reduce its annual dividend by 30 percent a year for the next 2 years. After that, it will..

  What is the value three years from now

A 4-year annuity of eight $6,600 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. If the discount rate is 10 percent compounded monthly, what is the value of this annuity five years from now? If the d..

  The efficient markets hypothesis assumes

The efficient markets hypothesis assumes all of the following except:

  Onsidering a new three-year expansion project

Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,340,000. The fixed asset falls into the three-year MACRS class (MACRS Table). What is the net cash flow of the project for the fol..

  Which cooling unit should be purchased and why

Germania Corporation is considering replacing its plant cooling unit. The existing unit has recently "died" and has no salvage value. The marginal cost of capital is 19 percent. Which cooling unit should be purchased? Why?

  How to establish a cost performance measurement baseline

Examine how to establish a cost and schedule performance measurement baseline. Present examples of EVM and how it will help the PM understand project status.

  Most recent dividend per share paid on the stock

Secolo Corporation stock currently sells for $30 per share. The market requires a return of 11.4 percent on the firm’s stock. If the company maintains a constant 3.7 percent growth rate in dividends, what was the most recent dividend per share paid o..

  What is the dollar amount of dividends

Lee purchased a stock one year ago for $25. The stock is now worth $30, and the total return to Lee for owning the stock was 0.36. What is the dollar amount of dividends that he received for owning the stock during the year?

  What is the firms break-even sales level

A firm has operating profits of $15,000 on unit sales of 10,000 units. Fixed costs are $30,000; each unit sells for $11.50 and has variable cost of $7.00. What is the firm's break-even sales level?

  Will it take him to repay the loan

While Steve Bouchard was a student at the University of Florida, he borrowed $12,000 in student loans at an annual interest rate of 9%. If Steve repays $1,500 per year, how long, to the nearest year, will it take him to repay the loan?

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