Treasury debt is lower than yield on five-year treasury debt

Assignment Help Financial Management
Reference no: EM131510766

You observe that the yield on one-year U.S. Treasury debt is lower than the yield on five-year U.S. Treasury debt. This is typically true because:

Investors expect inflation will be decreasing.

Investors require additional compensation since bonds with shorter maturities are always less liquid.

Investors demand compensation for accepting the higher interest rate risk of bonds with longer maturities.

The default risk-premium is decreasing.

The yield curve can never be downward sloping.

Reference no: EM131510766

Questions Cloud

Forecasts that inflation is going to increase : Inflation was 2% last year. Thomas forecasts that inflation is going to increase to 4% this year.
The bonds have more interest rate risk : At issue these bonds were rated BBB, but today they are rated AAA. The bonds have more interest rate risk than when they were issued.
Related to the term structure of interest rates : Which one of the following risk-premiums, by definition, is not related to the term structure of interest rates (i.e. shape of the yield curve)?
Make an accept-reject decision based on the results in part : Compute the values of i*’s for this project. Make an accept-reject decision based on the results in part
Treasury debt is lower than yield on five-year treasury debt : You observe that the yield on one-year U.S. Treasury debt is lower than the yield on five-year U.S. Treasury debt.
Zero-coupon bond to finance a new sausage factory : Three years ago Johnsonville Inc. issued a coupon bond and a zero-coupon bond to finance a new sausage factory.
Why do so many analysts disregard equity income : When it comes to restatements, why do so many analysts disregard Equity Income?
What is the break-even cost per kilowatt-hour : You require a return of 11 percent and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour?
What will be the remaining loan balance : What is the monthly payment? How much will Joan end up paying for the house if she lives there for 25 years? what will be the remaining loan balance?

Reviews

Write a Review

Financial Management Questions & Answers

  Pharmaceutical company that has developed new drug

You work for a pharmaceutical company that has developed a new drug. the patent of the drug will last 17 years. You expect that the drugs profits will $5 million dollars in its first year and that this amount will grow at a rate of 2% per year for th..

  What is average accounting return criterion decision rule

Describe how the average accounting return is usually calculated and describe the information this measure provides about a sequence of cash flows. What is the Average Accounting Return criterion decision rule? What problems associated with using the..

  Discuss how certain features of bonds

Discuss how certain features (characteristics) of bonds affect their risk and hence return. Also discuss the usefulness and limitations of bonds ratings. How would these factors change your investment strategy when looking at bonds?

  What does the market believe will be the stocks price

What does the market believe will be the stock's price at the end of 3 years and what ls the expected dividend per share for each of the 11011 5 years?

  About the loan amortization

Jan sold her house on December 31 and took a $35,000 mortgage as part of the payment. How much interest was included in the first payment?

  What is your one best guess as to the value of the bond

What is your one best guess as to the value of the bond?

  What should the price of the pound to the swiss franc

What should the price of the pound to the Swiss franc be in Zurich?- If sterling were quoted at CHF2.80 to the pound sterling in Zurich, what profit opportunities would exist?

  Yield to maturity and required returns

The Brownstone Corporation's bonds have 6 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 9%. What is the yield to maturity at a current market price of $812?

  Shareholders as the annual dividend

Michael's, Inc. just paid $2.60 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.60 percent. If you require a rate of return of 9.8 percent, how much are you willing to pa..

  Balance in merchandise inventory

A company's January 1 balance in Merchandise Inventory is $40,000. The December 31 balance is $35,000. Cost of goods sold is $220,000. The company's inventory turnover is

  Explain how the practice of corporate takeovers

Explain how the practice of corporate takeovers was arguably collectively irrational if we suppose that the corporation’s ultimate objective is long-term growth (and, hence, profitability).

  What nominal and effective rates of return per year

An investor purchased a 5%, $1000 30-year bond for $850 with 22 years to maturity. The interest was payable quarterly. The bond was kept for only 9 years and sold for $950 immediately after the 36th interest payment was received. What nominal and eff..

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