
  posted Jun 27 2014   Suppose the rate of return on a 10year Tbond is 6.55%, the expected average rate of inflation over the next 10 years is 2.0%, the MRP on a 10year Tbond is 0.9%, no MRP is required on a TIPS, and
Suppose the rate of return on a 10year Tbond is 6.55%, the
expected average rate of inflation over the next 10 years is 2.0%, the MRP on a
10year Tbond is 0.9%, no MRP is required on a TIPS, and no liquidity premium
is required on any Treasury security. Given this information, what should the
yield be on a 10year TIPS? Disregard crossproduct terms, i.e., if averaging
is required, use the arithmetic average.
a. 2.97%
b. 3.13%
c. 3.29%
d. 3.47%
e. 3.65%
   Sol...(1 more words & 1 attachments).    105.doc (26KB)  view    posted Jun 27 2014   The real riskfree rate is 3.55%, inflation is expected to be 3.15% this year, and the maturity risk premium is zero. Taking account of the crossproduct term, i.e., not ignoring it, what is the equi
The real riskfree rate is 3.55%, inflation is expected to
be 3.15% this year, and the maturity risk premium is zero. Taking account of
the crossproduct term, i.e., not ignoring it, what is the equilibrium rate of
return on a 1year Treasury bond?
a. 5.840%
b. 6.148%
c. 6.471%
d. 6.812%
e. 7.152%
   :So...(1 more words & 1 attachments).    103.doc (26KB)  view    posted Jun 27 2014   Suppose the real riskfree rate is 4.20%, the average expected future inflation rate is 3.10%, and a maturity risk premium of 0.10% per year to maturity applies, i.e., MRP = 0.10%(t), where t is the
Suppose the real riskfree rate is 4.20%, the average
expected future inflation rate is 3.10%, and a maturity risk premium of 0.10%
per year to maturity applies, i.e., MRP = 0.10%(t), where t is the years to
maturity, hence the pure expectations theory is NOT valid. What rate of return
would you expect on a 4year Treasury security? Disregard crossproduct terms,
i.e., if averaging is required, use the arithmetic average.
a. 6.60%
b. 6.95%
c. 7.32%
d. 7.70%
e. 8.09%
   utio...(1 more words & 1 attachments).    102.doc (26KB)  view 

