You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.0%. Your brother-in-law, a broker at Safe and Sound Securities, has given youthe following estimates of current interest rate premiums:= 2.75%Inflation premiumLiquidity premium= 0.8%• Maturity risk premium = 2.30%Default risk premium= 2.60%On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.%

Fisher gave an equation where the risk-free rate or the nominal rate can be converted into real…

You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.0%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: • Inflation premium = 2.75% • Liquidity premium = 0.8% Maturity risk premium = 2.30% Default risk premium = 2.60% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places. . %

You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.0%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: • Inflation premium = 2.75% • Liquidity premium = 0.8% Maturity risk premium = 2.30% Default risk premium = 2.60% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places. . %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.7%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: Inflation premium = 3.50% Liquidity premium = 1.0% Maturity risk premium = 1.85% Default risk premium = 2.60% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.
You read in The Wall Street Journal that 30-day T-bills are currentlyyielding 5.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you thefollowing estimates of current interest rate premiums:Inflation premium = 3.25%Liquidity premium = 0.6%Maturity risk premium = 1.85%Default risk premium = 2.15%On the basis of these data, what is the real risk-free rate of return?
You read in The Wall Street Journal that 60-day T-bills are currently yielding 9.5%. Your brother-in-law, a broker, has given you the following estimates of current interest rate premiums: Inflation premium = 6.5%. Liquidity premium = 1.15%. Maturity risk premium = 2.50%. Default risk premium = 2.22%. On the basis of these data, the real risk-free rate of return is?
You read in The Wall Street Journal that 30-day T-bills are currently yielding 9 percent. Your brother- in-law, a broker at Kyoto Securities, has given you the following estimates of current interest rate premiums: Inflation premium Liquidity premium Maturity risk premium 2% Default risk premium 2% 5% 1% Based on these data, the real risk-free rate of return is:
eBook You read in The Wall Street Journal that 30-day T-bills are currently yielding 4%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: · Inflation premium = 3.25% · Liquidity premium = 0.7% • Maturity risk premium = 1.85% · Default risk premium = 2.45% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places. %
Maharshi is attempting to find the nominal rate of interest for each of two securities A and B issued by different firms at the same point in He has gathered the following data: Characteristics Secuity A Security B Time to Maturity 3 Years 15 Years Inflation expectation premium 9% 7% Risk Premium For: Liquidity Risk 1% 1% Default Risk 1% 2% Maturity Risk 0.50% 1.50% Other Risk 0.50% 1.50% If the real rate of interest is 2%, find the risk free rate of interest applicable to each Find the total risk premium attributable to each Calculate the nominal rate of interest for each security?
A nominal risk-free rate is currently 3.5%. A broker at INV Securities, has given you the following estimates of current interest rate premiums: Inflation Premium: 2%, Liquidity Risk Premium 1.5%. Maturity Risk Premium 3%, and Default Risk Premium 1.5%. Based on these data, what are the rates of short-term corporate bonds? O 7.5% O 6.5% 8% 8.5%
3b. You read in the Wall Street Journal that 30-day treasury bills are currently yielding 8%. You are informed by a broker the following estimates of current interest rate premium: . Inflation premium = 5% • Liquidity premium = 1% Maturity risk premium = 2% Default risk premium = 2% Disregard cross product terms, i.e., if averaging is required, use the arithmetic average. On the basis of these data, what is the real risk-free rate of return.
Suppose we observe the following rates: 1R₁ = 6.2%, 1R₂ = 7.1%, and E(21) = 6.2%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2? (Round your intermediate calculations to 5 decimal places and final percentage answer to 2 decimal places. (e.g., 32.16)) Liquidity premium for year 2 %
Suppose you are considering two possible investment opportunities: a 12-yearTreasury bond and a 7-year, A-rated corporate bond. The current real risk-free rateis 4%, and inflation is expected to be 2% for the next 2 years, 3% for the following4 years, and 4% thereafter. The maturity risk premium is estimated by this formula:MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimatedto be 0.3%. You may determine the default risk premium (DRP), given thecompany’s bond rating, from the table below. Remember to subtract the bond’s LPfrom the corporate spread given in the table to arrive at the bond’s DRP. Whatyield would you predict for each of these two investments?RateCorporate Bond Yield
Use a different graph for each one and clearly label the axis and the shifting of curves. Explain clearly (in words and on the graph) whether the price and yield to maturity increased or decreased. You buy a bond that pays annual interest payments of 8% of the bond’s face value of $1000. You initially pay $1050 for the bond. You receive an annual interest payment after one year, then sell the bond for $1010. What is your total rate of return on the investment, expressed as a percentage of the purchase price?
Suppose we observe the following rates: 1R1= 0.75%, 1R2=1.20%, E(2r1)=0.907%. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L2?

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