I need help with 6.11

Financial Assets An analyst is evaluating securities in a develo 6-6 INFLATION CROSS-PRODUCT inflation is expected to be 16% each of the next 4 years,what is the yield on a 4-year with no maturity, default, or risk? (Hint: Refer to The Links between Inflation and Interest Rates: A Closer Look on Page 1 securities yield 5% The market 6-7 EXPECTATIONS THEORY One-year Treasury expectations that 1 year from now, 1-year Treasury securities will yield 6%. If the pure is correct, what is the yield today for 2-year Treasury securities? EXPECTATIONS THEORY Interest rates on bear Treasury securities are currently 7 while 6-year Treasury securities yield 7.5% If the pure expectations theory is correct. w does the market believe that 2-year securities will be yielding 4 years from now? EXPECTED INTEREST RATE this year, 4% next year, and 3.5% thereafter. The maturity r .05(-1)%, where t- number of years to maturity. What is the yield on a 7-year Treasury note? 6-8 The real risk-free rate is 3% Inflation is expected to be 6-9 risk premium is estimated to be INFLATION inflation rate in Year 2 and thereafter is expected to be constant at some level above 3 Due to a recesin, epected inflation this year is only 3% However, the 6-10 Assume that the expectations theory holds and the real risk-free rate is r 2% If the vield on a yeur Treasury bonds equals the 1-year yield plus 25%, what inflation rate is espicted (6-11 Acompany's5-year bonds are 775% peryear. DEFAULT RSK PREMIUM the same maturity are yielding 52% per year, and the real risk-free rate (r.) 23% The average inflation premium is 25% and the maturity risk premium is be 0.1 x (t 1%, wheret- number of years to maturity. Ii the liquidity premium is 1 what is the default risk premium on the corporate bonds? MATURITY RISK PREMIUM An investor in Treasury securities expects inflation to be 23 in Year 1.32% in Year 2, and 38% each year thereafter. Assume that the real risk-free rates /275% and that this rate will remain gonstant. Three-year Treasury securities yield while 5-year Treasury securities yield,68% what is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRPs MRP,? 6-13 DEFAULT RISK PREMIUM The real risk-free rate, r, is 2.5% Inflation is expected to averagt 25% a year for the rent 4 years, after which time inflation is epected to average 31 vear. Assume that there is no maturity risk premium. An 8-year corporate bond has ay of 83% which includes a liquidity premium of 0.75% What is its default risk premium EXPECTATIONS THEORY AND INFLATION while 1-year bonds yield 3% ris 6-14 Suppose 2-year Treasury bonds yield 45 1%, and the maturity risk premium is a. Using the expectations theory, what is the yield on a 1-year bond 1 year from no b. What is the expected inflation rate in Year 1? Year 27 15 EXPECTATIONS Assume that the real risk-free rate is 2% and that the mat THEORY emuurn is zero. If th e 1-year bond yield is 5% and a 2-year bond (of similar ris 7%, what is the 1-year interest rate that is expected for Year 2? What inflation rate expected during Year 22 Comment on why the average interest rate durine the