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# [Solved] Assignment 219076

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Question
1. A 2-year Treasury security currently earns 2.05 percent. Over the next two years, the real risk-free rate is expected to be 1.00 percent per year and the inflation premium is expected to be 0.65 percent per year. Calculate the maturity risk premium on the 2-year Treasury security.2. You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.60 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:Real risk-free rate = 0.40%
Expected IP %
b.
1R1 = 5%, E(2r1) = 6%, E(3r1) = 6.4%, E(4r1) = 6.75%
Using the unbiased expectations theory, calculate the current (long-term) rates for 1-, 2-, 3-, and 4-year-maturity Treasury securities. (Round your answers to 2 decimal places.)
Year Current (Long-term) Rates
1 %
2 %
3 %
4 %
10. Based on economists’ forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows:R1 = .70%
E(2r1) = 1.85% L2 = 0.05%
E(3r1) = 1.95% L3 = 0.10%
E(4r1) = 2.25% L4 = 0.12%
Using the liquidity premium theory, plot the current yield curve. Make sure you label the axes on the graph and identify the four annual rates on the curve both on the axes and on the yield curve itself. (Do not round intermediate calculations. Round your answers to 2 decimal places.)Year Current (Long-term) Rates
1 %
2 %
3 %
4
%

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