Question
5. Assume that the expectations theory holds, and that liquidity and maturity risk premiums are zero. If the annual rate of interest on a 4-year
5. Assume that the expectations theory holds, and that liquidity and maturity risk premiums are zero. If the annual rate of interest on a 4-year Treasury bond is 2.0 percent and the rate on a 2-year Treasury bond is 1.75 percent, what rate of interest should you expect on a 2-year Treasury bond, two years from now?
6. Assume that you will receive $6,000 a year in Years 1 and 2, $4,000 a year in Years 3 and 4, and $3,000 in Year 5, with all cash flows to be received at the end of the year. If you require a 5 percent rate of return, what is the present value of these cash flows?
7. Which bank CD (assume equal risk) has the highest effective annual return (EAR)?
Group of answer choices
a. One that pays 7.99 percent daily (on a 365-day basis)
b. One that pays 8.00 percent monthly.
c. One that pays 8.00 percent annually.
d. One that pays 8.15 percent quarterly.
e. One that pays 8.20 percent semiannually.
8. What is the future value of a $1,000 investment after 50 years at 1% interest?
9. What is the present value of an inflow of $30,000 in 25 years, evaluated at 6% interest?
10. Assuming investments occur at the beginning of a period, what is the future value of investing $1,000 annually for 60 years at 5% interest?
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