Suppose that the spot interest rate on a one-year zero-coupon bond is 1%, and the spot...

Suppose that the spot interest rate on a one-year zero-coupon bond is 1%, and the spot interest rate on a two-year zero-coupon bond is 2%. Suppose also that you expect the one-year interest rate starting in one year to be 1%. Relative to the market expectations, do you think a recession is more likely or less likely?

Expert Solution

jeff jeffy answered 2 years ago

Suppose that the spot interest rate on a one-year zero-coupon bond is 2% and the spot...

Suppose that the spot interest rate on a one-year zero-coupon bond is 2% and the spot interest rate on a two-year zero-coupon bond is 3.5%. Based on the pure expectations theory of the term structure of interest rates, what is the expected one-year interest rate starting in one year?

Suppose a 10-year zero-coupon bond (zero) is trading spot at 6% and a 20-year zero is...

Suppose a 10-year zero-coupon bond (zero) is trading spot at 6% and a 20-year zero is trading spot at 8%. We know that the 10 year forward rate for a 10 year zero must be 0.1004 (annual compounding). All are risk free. If the rates are not 0.1004 for the forward you can make a free profit by using arbitrage. Suppose you have $0 dollars today but are allowed to sell and buy $100,000 worth of zero coupon bonds (and...

Suppose a 10-year zero-coupon bond (zero) is trading spot at 5% and a 20-year zero is...

Suppose a 10-year zero-coupon bond (zero) is trading spot at 5% and a 20-year zero is trading spot at 7%. In lectures (L4.9) we proved that the 10 year forward rate for a 10 year zero must be 0.0904 (annual compounding). All are risk free. If the rates are not 0.0904 for the forward you can make a free profit by using arbitrage. Suppose you have $0 dollars today but are allowed to sell and buy $100,000 worth of zero...

Year Zero-coupon bond yield (Sport rate) Zero-coupon bond price 1-year implied forward rate Par coupon rate...

Year Zero-coupon bond yield (Sport rate) Zero-coupon bond price 1-year implied forward rate Par coupon rate 1 5% a 2 b c d 6% Please find out the values of a,b,c and d.

Suppose that a six-month zero coupon bond is currently selling at $925.93 and a one-year zero...

Suppose that a six-month zero coupon bond is currently selling at $925.93 and a one-year zero coupon bond is selling at $797.19. (a.)Determine the annualized six-month spot rate and the annualized one-year spot rate. (b.)Determine the implied annualized six-month forward rate for six-months from now. (c.)Suppose the annualized yield-to-maturity on an eighteen-month zero-coupon bond was 7.00%and the spot yield on a two-year zero was 13.00%. Based on this information and your results from above, describe which theory (or theories) of...

Suppose the interest rate on a one-year bond today is 6% per year, the interest rate...

Suppose the interest rate on a one-year bond today is 6% per year, the interest rate on a one-year bond one year from now is expected to be 4% per year, and the interest rate on a one-year bond two years from now is expected to be 3% per year. Assuming risk neutral investors, what is the interest rate today on a two-year bond? On a three-year bond? What is the shape of the yield curve?

Assume a 10 year zero-coupon bond with a face value of $1,000.The interest rate has...

Assume a 10 year zero-coupon bond with a face value of $1,000. The interest rate has increased form 10% to 20%. What is the capital gain?

Suppose you have access to the following bond data. One year zero coupon bond, priced at...

Suppose you have access to the following bond data. One year zero coupon bond, priced at 98, face value 100. Two year coupon bond, priced at 97. Annual coupons are $2, delivered at end of year. Three year coupon bond, priced at 96. Annual coupons are $3, delivered at the end of the year. 1. What is the coupon rate on the two-year coupon bond? 2. What is the current yield on the three-year coupon bond? 3. What is the...

Suppose that a 1 year zero coupon bond with a face of $100 sells at $94.34....

Suppose that a 1 year zero coupon bond with a face of $100 sells at $94.34. While a zero 2 year sells at $84.99. You are considering the purchase of a 2 year maturity bond making annual coupon payments. The face value of the bond is $100 and the coupon rate is 12% per year. 1. What is the yield to maturity of the 2 year zero? 2. What is the yield to maturity of the 2 year coupon bond?...

Suppose that the one-year interest rate is 4.30% in Italy, the spot exchange rate is $1.5550/€1.00,...

Suppose that the one-year interest rate is 4.30% in Italy, the spot exchange rate is $1.5550/€1.00, and the one-year forward exchange rate is $1.5979/€1.00. Based on interest rate parity, what must the one-year interest rate be in the United States? Question 19 options: 1.832% 1.935% 1.500% 7.177% 1.478% 2.685%

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