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Include explanation please. An investor in Treasuries expects inflation to be 2% in Year 1, 3% in Year 2, and 3.5% each year after. Assume
Include explanation please.
- An investor in Treasuries expects inflation to be 2% in Year 1, 3% in Year 2, and 3.5% each year after. Assume the risk-free rate is 2.5%, and this will remain constant. 3-year Treasuries yield 6%, while 5-year Treasuries yield 6.9%. What is the difference in the MRPs on the two securities; that is MRP5 MRP3?
A company has 9.50% annual coupon bonds outstanding with 15 years of maturity left. These bonds have a FV of $1,000 and a PV of $1,137.76.
- What is the YTM?
- What is the current yield?
- What is the expected gains yield?
- Suppose there was a call provision that would allow this company to call the bonds in 5 years. Call price is $1,040. What is the yield to call on the bonds?
- What is the rate of return an investor should expect if they would buy these bonds today? Explain your answer.
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