If the loan interest rate adjusts every quarter and the deposit interest rate adjust every six months, the risk of interest rate from the different frequencies of rate adjustments is called Repricing risk O yield -curve risk basis point risk O default risk QUESTION 5 If the loan interest rate is 4 % mark-up on the 6 month treasury bill and the deposit interest rate is 1% mark-up on the 3 month treasury bill, the risk of interest rate like this is called

If the loan interest rate adjusts every quarter and the deposit interest rate adjust every six months, the risk of interest rate from the different frequencies of rate adjustments is called Repricing risk O yield -curve risk basis point risk O default risk QUESTION 5 If the loan interest rate is 4 % mark-up on the 6 month treasury bill and the deposit interest rate is 1% mark-up on the 3 month treasury bill, the risk of interest rate like this is called

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 18P

See similar textbooks

Similar questions

If the loan interest rate is 4 % mark-up on the 6 month treasury bill and the deposit interest rate is 1% mark-up on the 3 month treasury bill, the risk of interest rate like this is called (a) Repricing risk (b) yield -curve risk (c) basis point risk (d) default risk
Suppose the term structure of risk-free interest rates is as shown below: 5 yr 7 yr 10 yr 20 yr Term 1 уг 2 yr 3 yr 3.24 3.79 4.09 5.05 2.07 2.46 2.71 Rate (EAR %) a. Calculate the present value of an investment that pays $1,000 in two years and $3,000 in five years for certain. b. Calculate the present value of receiving $100 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year 4 would be the average rate in year 3 and year 5.) c. Calculate the present value of receiving $1,800 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.)
Suppose the term structure of risk-free interest rates is as shown below. 1 yr Term 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr Rate (EAR %) 2.08 2.42 2.61 3.24 3.87 4.04 5.07 a. Calculate the present value of an investment that pays $5,000 in two years and $3,000 in five years for certain. b. Calculate the present value of receiving $300 per year, with certainty, at the end of the next five years. To find the rates for the missing years in the table, linearly interpolate between the years for which you do know the rates. (For example, the rate in year 4 would be the average rate in year 3 and year 5.) c. Calculate the present value of receiving $2,300 per year, with certainty, for the next 20 years. Infer rates for the missing years using linear interpolation. (Hint: Use a spreadsheet.) a. Calculate the present value of an investment that pays $5,000 in two years and $3,000 in five years for certain, The present value of the investment is $ (Round to the nearest dollar.)
5 Year Treasury Notes are currently yielding 6.00%, and you have found the following interest premium that relate to this investment: • Inflation premium 1.75% • Liquidity premium 0.00% • Default risk premium 0.00% • Maturity risk premium 1.50% Given the above information, what is the real risk-free rate of return?
Mr. A wants to borrow funds from B. The risk-free rate is 6% and current inflation is 2%. It is expected that inflation is expected to grow at 3%. B finds a relevant margin of 4% on the loan. Compute: Risk-free rate New nominal risk-free rate The interest rate for the loan
Assume that the real risk-free rate is 2% and that the maturityrisk premium is zero. If a 1-year Treasury bond yield is 5% and a 2-year Treasury bondyields 7%, what is the 1-year interest rate that is expected for Year 2? Calculate this yieldusing a geometric average. What inflation rate is expected during Year 2? Comment onwhy the average interest rate during the 2-year period differs from the 1-year interestrate expected for Year 2.
Suppose we observe the following rates: 1R1 = 6.7, 1R2 = 7.4, and E(2r1) = 6.7. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2? Please step by step.
Assume that a three-year treasury note (T - note) has no maturity premium, and that the real risk - free rate of interest is 5 percent. If the T - note varries a nominal risk rate of return of 13 perent and if the expected average infaltion rate over the next two years is 9 percent, what is the implied expected inflation rate during Year 3 ?
Suppose the real risk-free rate of interest is 3% and inflation is expected to be 2% and 3% over the next two years. If a 2-year Treasury security yields 6%, what is the maturity risk premium for the 2-year Treasury security? 1.5% 0.5% 0.2% O 1.0%
Suppose the real risk-free rate of interest is r*=4%�*=4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next two years and 3.90% per year for the next three years. The maturity risk premium is 0.1×(t−1)%0.1×�−1%, where t� is number of years to maturity, a liquidity premium is 0.45%, and the default risk premium for a corporate bond is 1.40%. The average inflation during the first 4 years is2.37% . What is the yield on a 4-year Treasury bond? 4.30% 8.90% 6.75% 7.05% What is the yield on a 4-year BBB-rated bond? 8.90% 7.50% 7.05% 8.45% If the yield on a 5–year Treasury bond is 7.38% and the yield on a 6–year Treasury bond is 7.83%, the expected inflation in 6 years is . (Hint: Do not round intermediate calculations.)
which of the following statements are true? 1. there is an inverse relationship between interest rates and future vales 2. the effective annual interest rate (EAR) will be higher than the annual percentage rate (APR) for a loan that compounds interest annually 3. there is an inverse relationship between present value and interest rates 4. all else equal, the more frequent interest in compounded on a loan, the more interest you will have to pay.
Suppose we observe the following rates: 1R1 = 4.1%, 1R2 = 4.9%, and E(21) = 4.1%. If the liquidity premium theory of the term structur of interest rates holds, what is the liquidity premium for year 2? (Round your intermediate calculations to 5 decimal places and fina percentage answer to 2 decimal places. (e.g., 32.16)) Liquidity premium for year 2 %