Answered step by step
Verified Expert Solution
Question
1 Approved Answer
PLEASE FIX ANSWERS THAT ARE INCORRECT! Assume that the real risk-free rate is 1% and that the maturity risk premium is zero. If a 1-year
PLEASE FIX ANSWERS THAT ARE INCORRECT!
Assume that the real risk-free rate is 1% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5% and a 2-year Treasury bond yields 6%, what is the 1-year interest rate that is expected for Year 2? Calculate this yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. 7.01 % What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to two decimal places. 6 % Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2. I. The difference is due to the fact that we are dealing with very short-term bonds. For longer term bonds, you would not expect an interest rate differential. II. The difference is due to the fact that there is no liquidity risk premium. III. The difference is due to the inflation rate reflected in the two interest rates. The inflation rate reflected in the interest rate on any security is the average rate of inflation expected over the security's life. IV. The difference is due to the real risk-free rate reflected in the two interest rates. The real risk-free rate reflected in the interest rate on any security is the average real risk-free rate expected over the security's life. V. The difference is due to the fact that the maturity risk premium is zero. IV Earley Corporation issued perpetual preferred stock with an 8% annual dividend. The stock currently yields 7%, and its par value is $100. Round your answers to the nearest cent. a. What is the stock's value? 114.29 b. Suppose interest rates rise and pull the preferred stock's yield up to 15%. What is its new market value? 53 Weston Corporation just paid a dividend of $2 a share (i.e., Do = $2). The dividend is expected to grow 9% a year for the next 3 years and then at 4% a year thereafter. What is the expected dividend per share for each of the next 5 years? Do not round intermediate calculations. Round your answers to the nearest cent. D1 = $ 2.18 D2 = $ 2.38 D3 = $ 2.59 D4 = $ 2.82 D5 = $ 3.08Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started