problem 1: Three-year Treasury securities presently yield 6%, while 4-year Treasury securities presently yield 6.5%. Suppose that the expectations theory holds. What does the market believe the rate will be on 1-year Treasury securities three years from now?
a) 8.01%
b) 8.51%
c) 9.01%
d) 9.51%
e) 10.01%
problem 2: The real risk-free rate is 3%. The market expects that the inflation of 3% for each of next 5 years, and 5% a year afterward. The maturity risk premium is estimated to be MRPt = 0.1% (t − 1). Determine the yield on a Treasury bond which matures in 12 years? Disregard cross-product terms, that is, if averaging is required, utilize the arithmetic average.
a) 8.10%
b) 8.27%
c) 8.45%
d) 8.53%
e) 8.68%
problem 3: Brown Enterprises bonds presently sell for $1,025. They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000. Determine their yield to maturity?
a) 6.87%
b) 7.03%
c) 7.21%
d) 7.45%
e) 7.61%
problem 4: Brown Enterprise’s bonds presently sell for $1,025. They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000. Find out their current yield?
a) 7.80%
b) 7.90%
c) 9.00%
d) 9.10%
e) 9.20%
problem 5: Yest Corporation's bonds encompass a 15-year maturity, a 7% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 6%, based upon semiannual compounding. Determine the bond's price?
a) $1,008.65
b) $1,024.67
c) $1,051.34
d) $1,098.00
e) $1,105.78