Along with economist, if savings equal $5 trillion and spending equals $100 trillion, what will investment equal?
Inflation is anticipated to be 3.0% this year, 4.0% next year, 5.0% in year 3 and the steady 4.0% after that. The Pure Interest Rate is 2.5%. The Liquidity Risk Premium is zero for corporate bonds under three (3) years and 0.5% for bonds with terms of three (3) years or more. The Default Risk Premium is 1.0% for corporate bonds. The Maturity Risk Premium is evaluated by using the subsequent formula: 0.2 %( t-1), where t = the term of bond. By using the Interest Rate Model, develop the term structure for the corporate bond and for the federal government bond for bonds with terms of 1 through ten years.
If inflation is anticipated to be 3.0% per year for the upcoming three (3) years and 4.0% per year thereafter, and the real risk free rate is approximate to be 2.4%, compute the base rate component for each of following securities: 4-year; 6-year; 10-year.
If inflation is not anticipated to change from its current level for foreseeable future, would you anticipate seeing a normal or an inverted yield curve for the series of bonds issued by the stable corporation? Why?