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What effect would each of the following events likely have on the level of nominal interest rates? Households dramatically increase their savings rate. This action
What effect would each of the following events likely have on the level of nominal interest rates? Households dramatically increase their savings rate. This action will the supply of money; therefore, interest rates will Corporations decrease their demand for funds following a decrease in investment opportunities. This action will cause interest rates to The government runs a largerthanexpected budget deficit. The larger the federal deficit, other things held constant, the the level of interest rates. There is a decrease in expected inflation. This expectation will cause interest rates to Suppose you are considering two possible investment opportunities: a year Treasury bond and a year, AArated corporate bond. The current real riskfree rate is and inflation is expected to be for the next years, for the following years, and thereafter. The maturity risk premium is estimated by this formula: MRP t The liquidity premium LP for the corporate bond is estimated to be You may determine the default risk premium DRP given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP Corporate Bond Yield Rate Spread DRP LP US Treasury AAA corporate AA corporate A corporate What yield would you predict for each of these two investments? Round your answers to three decimal places. year Treasury yield: fill in the blank year Corporate yield: fill in the blank Given the following Treasury bond yield information, construct a graph of the yield curve. Maturity Yield year years years years years years years years Choose the correct graph. The correct graph is A B C D Based on the information about the corporate bond provided in part b calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds. Round your answers to two decimal places. Years Treasury yield AAcorporate yield fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank fill in the blank Choose the correct graph. The correct graph is A B C D Which part of the yield curve the left side or right side is likely to be most volatile over time? Shortterm rates are volatile than longerterm rates; therefore, the side of the yield curve would be most volatile over time. Using the Treasury yield information in part c calculate the following rates using geometric averages round your answers to three decimal places: The year rate, year from now fill in the blank The year rate, years from now fill in the blank The year rate, years from now fill in the blank The year rate, years from now fill in the blank
What effect would each of the following events likely have on the level of nominal interest rates?
Households dramatically increase their savings rate.
This action will
the supply of money; therefore, interest rates will
Corporations decrease their demand for funds following a decrease in investment opportunities.
This action will cause interest rates to
The government runs a largerthanexpected budget deficit.
The larger the federal deficit, other things held constant, the
the level of interest rates.
There is a decrease in expected inflation.
This expectation will cause interest rates to
Suppose you are considering two possible investment opportunities: a year Treasury bond and a year, AArated corporate bond. The current real riskfree rate is and inflation is expected to be for the next years, for the following years, and thereafter. The maturity risk premium is estimated by this formula: MRP t The liquidity premium LP for the corporate bond is estimated to be You may determine the default risk premium DRP given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP
Corporate Bond Yield
Rate Spread DRP LP
US Treasury
AAA corporate
AA corporate
A corporate
What yield would you predict for each of these two investments? Round your answers to three decimal places.
year Treasury yield: fill in the blank
year Corporate yield: fill in the blank
Given the following Treasury bond yield information, construct a graph of the yield curve.
Maturity Yield
year
years
years
years
years
years
years
years
Choose the correct graph.
The correct graph is
A
B
C
D
Based on the information about the corporate bond provided in part b calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds. Round your answers to two decimal places.
Years Treasury yield AAcorporate yield
fill in the blank
fill in the blank
fill in the blank
fill in the blank
fill in the blank
fill in the blank
fill in the blank
fill in the blank
Choose the correct graph.
The correct graph is
A
B
C
D
Which part of the yield curve the left side or right side is likely to be most volatile over time?
Shortterm rates are
volatile than longerterm rates; therefore, the
side of the yield curve would be most volatile over time.
Using the Treasury yield information in part c calculate the following rates using geometric averages round your answers to three decimal places:
The year rate, year from now
fill in the blank
The year rate, years from now
fill in the blank
The year rate, years from now
fill in the blank
The year rate, years from now
fill in the blank
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