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70.
Suppose we observe the following rates: 1R1 = 13 percent, 1R2 = 16 percent, and E(2r1) =
10 percent. If the liquidity premium theory of the term structure of interest rates holds,
what is the liquidity premium for year 2, L2?
71.
You note the following yield curve in
The Wall Street Journal.
According to the unbiased
expectations hypothesis, what is the one-year forward rate for the period beginning one
year from today, 2f1?
72.
On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-
year zero-coupon Treasury security rates were as follows:
1R1 = 4.55 percent, 1R2 = 4.75 percent, 1R3 = 5.25 percent, 1R4 = 5.95 percent
Using the unbiased expectations theory, calculate the one-year forward rates on zero-
coupon Treasury bonds for years two, three, and four as of May 23, 20XX.
73.
The Wall Street Journal
reports that the current rate on 10-year Treasury bonds is 6.25
percent, on 20-year Treasury bonds is 7.95 percent, and on a 20-year corporate bond is
10.75 percent. Assume that the maturity risk premium is zero. If the default risk premium
and liquidity risk premium on a 10-year corporate bond is the same as that on the 20-year
corporate bond, calculate the current rate on a 10-year corporate bond.
74.
The Wall Street Journal
reports that the current rate on five-year Treasury bonds is 6.45
percent and on 10-year Treasury bonds is 7.75 percent. Assume that the maturity risk
premium is zero. Calculate the expected rate on a five-year Treasury bond purchased five
years from today, E(5r5).
75.
Suppose we observe the three-year Treasury security rate (1R3) to be 11 percent, the
expected one-year rate next year E(2r1) to be 4 percent, and the expected one-year rate
the following year E(3r1) to be 5 percent. If the unbiased expectations theory of the term
structure of interest rates holds, what is the one-year Treasury security rate, 1R1?
76.
Assume the current interest rate on a one-year Treasury bond (1R1) is 5.50 percent, the
current rate on a two-year Treasury bond (1R2) is 5.95 percent, and the current rate on a
three-year Treasury bond (1R3) is 8.50 percent. If the unbiased expectations theory of the
term structure of interest rates is correct, what is the one-year interest rate expected on
Treasury bills during year 3, 3f1?
77.
If the yield curve is downward sloping, what is the yield to maturity on a 30-year Treasury
bond relative to a 10-year Treasury bond?
78.
One-year Treasury bill rates in 20XX averaged 5.15 percent and inflation for the year was
7.3 percent. If investors had expected the same inflation rate as that realized, calculate the
real interest rate for 20XX according to the Fisher effect.
79.
Assume that you observe the following rates on long-term bonds:
U.S. Treasury bonds = 4.15 percent
AAA Corporate bonds = 6.2 percent
BBB Corporate bonds = 7.15 percent
The main reason for the differences in the interest rates is:
80.
Which of the following statements is correct?
81.
One-year interest rates are 3 percent. The market expects one-year rates to be 5 percent
one year from now. The market also expects one-year rates to be 7 percent two years from
now. Assume that the unbiased expectations theory holds. Which of the following is
correct?
82.
Which of the following statements is correct?
83.
The Wall Street Journal
states that the yield curve for Treasuries is downward sloping and
there is no liquidity premium or maturity risk premium. Given this information, which of the
following statements is correct?
84.
Which of the following statements is correct?
85.
In 20XX, the 10-year Treasury rate was 4.5 percent while the average 10-year Aaa
corporate bond debt carried an interest rate of 6.0 percent. What is the average default
risk premium on Aaa corporate bonds?
6.0 - 4.5 = 1.5
86.
Which of the following statements is correct?
87.
All of the following are types of financial institutions EXCEPT:
88.
All of the following are benefits that financial institutions provide to our economy
EXCEPT:
89.
All of the following are factors that affect nominal interest rates EXCEPT:
90.
Which of the following statements is correct?
