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Chapter: 6 / Q: 6.4
Suppose interest rates on Treasury bonds rose from 5% to 9% as a result of higher interest rates in Europe. What effect would this have on the price of an average company’s common stock
Chapter: 6 / Q: 6.5
What does it mean when it is said that the United States is running a trade deficit What impact will a trade deficit have on interest rates
Chapter: 6 / Q: 6.6
The real risk-free rate is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities What is the yield on 3-year Treasury securities
Chapter: 6 / Q: 6.7
A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond
Chapter: 6 / Q: 6.8
The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security
Chapter: 6 / Q: 6.9
One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities
Chapter: 6 / Q: 6.10
Interest rates on 4-year Treasury securities are currently 7%, while 6-year Treasury securities yield 7.5%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now
Chapter: 6 / Q: 6.11
The real risk-free rate is 3%. Inflation is expected to be 3% this year, 4% next year, and 3.5% thereafter. The maturity risk premium is estimated to be 0.05 × (t – 1)%, where t 1⁄4 number of years to maturity. What is the yield on a 7-year Treasury note
Chapter: 6 / Q: 6.12
The real risk-free rate, r*, is 2.5%. Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 8.3%, which includes a liquidity premium of
Chapter: 6 / Q: 6.13
Suppose 2-year Treasury bonds yield 4.5%, while 1-year bonds yield 3%. r* is 1%, and the maturity risk premium is zero. Using the expectations theory, what is the yield on a 1-year bond 1 year from now What is the expected inflation rate in Year 1 Year 2
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