Suppose the inflation rate is expected to be 6.6% next year, 4.15% the following year, and 2.75% thereafter. Assume that the real risk-free rate, r*, will remain at 2.45% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. a. Calculate the interest rate on 1-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 2-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 3-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 4-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 5-year Treasury securities. Round your answer to two decimal places. Search the web and your PC o * e @ No w 9 - OneDrive 1x Up to date 2/21/2020 Calculate the interest rate on 10-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 20-year Treasury securities. Round your answer to two decimal places. Select the correct yield curve based on these data. I Interest Rate (%) 900 NotMNIT tuttu u +++++++++++ 2 4 6 8 10 12 14 16 18 Years to Maturity 7:55 AM Search the web and your PC Ot *e - @ N OW 9 ^ "Speaker/Headphone: Muted 101 Interest Rate (%) NotNET 2 4 6 8 10 12 14 16 18 Years to Maturity Interest Rate (%) SONOMNI -21 2 4 6 8 10 12 14 16 18 Years to Maturity 7:55 AM Search the web and your PC o & * e @ N ow 9 - O . a 1x 2/21/2020 Interest Rate (%) 90 NotNET 2 4 6 8 10 12 14 16 18 Years to Maturity The correct sketch is -Select- . b. Suppose a AAA-rated company (which is the highest bond rating a firm can have) had bonds with the same maturities as the Treasury bonds. Estimate what you believe a AAA-rated company's yield curve would look like on the same graph with the Treasury bond yield curve. (Hint: Think about the default risk premium on its long-term versus its short-term bonds.) The yield risk curve for the AAA-rated corporate bonds will - Select the yield curve for the Treasury securities. c. What will be the approximate yield curve of a much riskier lower-rated company with a much higher risk of defaulting on its bonds? the yield curve for the Treasury securities and -Select the yield curve for the AAA-rated corporate The yield risk curve of a much riskier lower-rated company will be -Select bonds. earch the web and your PC o B $ N o w 9 ^ o . 7:55 AM lra 2/21/2020 Suppose the inflation rate is expected to be 6.6% next year, 4.15% the following year, and 2.75% thereafter. Assume that the real risk-free rate, r*, will remain at 2.45% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. a. Calculate the interest rate on 1-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 2-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 3-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 4-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 5-year Treasury securities. Round your answer to two decimal places. Search the web and your PC o * e @ No w 9 - OneDrive 1x Up to date 2/21/2020 Calculate the interest rate on 10-year Treasury securities. Round your answer to two decimal places. Calculate the interest rate on 20-year Treasury securities. Round your answer to two decimal places. Select the correct yield curve based on these data. I Interest Rate (%) 900 NotMNIT tuttu u +++++++++++ 2 4 6 8 10 12 14 16 18 Years to Maturity 7:55 AM Search the web and your PC Ot *e - @ N OW 9 ^ "Speaker/Headphone: Muted 101 Interest Rate (%) NotNET 2 4 6 8 10 12 14 16 18 Years to Maturity Interest Rate (%) SONOMNI -21 2 4 6 8 10 12 14 16 18 Years to Maturity 7:55 AM Search the web and your PC o & * e @ N ow 9 - O . a 1x 2/21/2020 Interest Rate (%) 90 NotNET 2 4 6 8 10 12 14 16 18 Years to Maturity The correct sketch is -Select- . b. Suppose a AAA-rated company (which is the highest bond rating a firm can have) had bonds with the same maturities as the Treasury bonds. Estimate what you believe a AAA-rated company's yield curve would look like on the same graph with the Treasury bond yield curve. (Hint: Think about the default risk premium on its long-term versus its short-term bonds.) The yield risk curve for the AAA-rated corporate bonds will - Select the yield curve for the Treasury securities. c. What will be the approximate yield curve of a much riskier lower-rated company with a much higher risk of defaulting on its bonds? the yield curve for the Treasury securities and -Select the yield curve for the AAA-rated corporate The yield risk curve of a much riskier lower-rated company will be -Select bonds. earch the web and your PC o B $ N o w 9 ^ o . 7:55 AM lra 2/21/2020
