Estimate the expected real rate of return

Assignment Help Finance Basics
Reference no: EM13282552

A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury bond has an interest rate of 2.5 percent. A maturity risk premium is estimated to be 0.2 percentage points for the longer maturity bond. Investors expect inflation to average 1.5 percentage points over the next ten years.

a. Estimate the expected real rate of return on the ten-year U.S. Treasury bond.

b. If the real rate of return is expected to be the same for the thirty-year bond as for the ten-year bond, estimate the average annual inflation rate expected by investors over the life of the thirty-year bond.

 

Reference no: EM13282552

Questions Cloud

What is this speed in meters per second : Bicyclists in the Tour de France reach speeds of 34.0 miles per hour (mi/h) on flat sections of the road. What is this speed in meters per second
Design and demonstrate a code acqusition method : Study code acquisition in frequncy hopping spread spectrum communication systems.Describe and explain why it is necessary. Design and demonstrate a code acqusition method.
What is the straight-debt value of each bond : The firm's common stock is presently selling for $75.00 par per share and it pays a dividend of $3.50. The firm is growing at a constant rate of 8.00%.
Find the average density of neptune : The average density of the planet uranus is 1.27 x 10^3 kg/m^3. The ratio of the mass of neptune to that of Uranus is 1.19. Find the average density of Neptune
Estimate the expected real rate of return : If the real rate of return is expected to be the same for the thirty-year bond as for the ten-year bond, estimate the average annual inflation rate expected by investors over the life of the thirty-year bond.
Which would alternate giving distance to school and to home : An indecisive student contemplates whether he should stay home ortake his final exam, which is being held 2 miles away. Starting at home, the student travels half the distance to the exam venue before changing his mind.
Determine the speed of the first marble : A 50g marble moving at 2.2m/s strikes a 30g marble at rest. Assume the collision is perfectly elastic and the marbles collide head-on. What is the speed of the first marble
What is the most you should pay for the annuity : You have a chance to buy an annuity that pays $2,500 at the end of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?
Explain releasing a photon of electromagnetic radiation : Consider an electron moving from an n = 2 orbital to an n = 1 orbital. For this to occur, will the atom need to absorb energy or dissipate energy by releasing a photon of electromagnetic radiation. Is the n = 2 orbital more or less stable than the..

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the straight-debt value of the bond at the time

If the bonds were not convertible, investors would require an annual nominal yield of 10%. What is the straight-debt value of the bond at the time of issue?

  Finance based objective questions

If you have a salary of $30,000, an IRA decrease of $2,000, a standard deduction of $4,400, and a FICA rate of 7.65 percent, determine how much did you pay in FICA this year?

  Purchasing a lifetime subscription

Your subscription to Jogger's World is about to run out and you have the choice of renewing it through sending in the $10 a year regular rate at the end of each year or of getting a lifetime subscription to the magazine through paying $100 today.

  What is the ucl

The following information and chart is data for these final inspections. Each sample represents one ship (n = 1). Create a c chart.

  Calculate value of operations

EMC Company has never paid a dividend. EMC current free cash flow of $400,000 is expected to increase at a constant rate of 5 percent. The weighted average cost of capital is 12%.

  What is the maximum amount of dividends

what is the maximum amount of dividends PER SHARE that the firm could pay? In terms of cash availability, what is the maximum amount of dividends PER SHARE the firm could pay?

  Calculate the dollar cost of each of the proposed plans

If the firm had made a purchase of $100,000 for which it had been given terms of 2/10 net 30, would it increase the firm's profitability to give up the discount and not borrow as recommended in part b? Why or why not?

  Cross rate between pound and yen

Suppose the pound trades for 13.0840 pesos and the guilder trades for 4.5070 pesos or 65.4090 yen. What is the cross rate between the pound and the yen, that is, how many pounds will the yen buy?

  Is it a good idea to open american fast food restaurants

Is it a good idea to open American fast food restaurants in Disney parks overseas selling the same kind of food sold in U.S. parks? Why or why not?

  Compute the current value of the stock

Sam's Corporation expects to pay a dividend of $6 per share at the end of year one, $9 per share at the end of year two, and then be sold for $136 per share at the end of year two.

  Determine the value of the current assets

Winslow Enterprises has total assets of $11,700, net working capital of $1,400, owner's equity of $5,000 and long-term debt of $3,500. Determine the value of the current assets?

  Calculate the correct balance of cash

Comparing the company's cash records with the monthly bank statement reveals several additional cash transactions such as checks outstanding of $3,880, deposits outstanding of $1,230, NSF check of $300, and service fee of $50.

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