Consider the following situation: at the start of the year, a one-year bill is priced at $920 Economists forecasted that the inflation rate for the year will be 5% but the actual inflation rate is at 6.5%. Calculate the nominal interest rate and the real interest rate.
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Q: Which one is the approximate periodic interest rate % on a Treasury bill that you purchase for 4,908…
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- Define the stated (quoted) or nominal rate INOM as well as the periodic rate IPER. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? What is the future value of $100 after 5 years under 12% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding? Daily compounding? What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?Suppose we have the following Treasury bill returns and inflation rates over an eight year period: Year Treasury Bills Inflation 1 10.45% 12.55% 2 11.36 16.00 3 9.06 10.29 4 8.34 7.97 5 8.88 10.29 6 11.23 12.77 7 14.11 16.98 8 15.97 16.90 a. Calculate the average return for Treasury bills and the average annual inflation rate for this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Treasury bills % Inflation % b. Calculate the standard deviation of Treasury bill returns and inflation over this period. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Treasury bills % Inflation %…Assume that, for a three year period, the yearly inflation rate is 10% in the firstyear, 12% in the second year and 6% in the third year. During these three years, if the yearlymarket interest rate is 15% compounded monthly, compute the average inflation-free interestrate per quarter for this three year period
- Suppose that you borrow $42,500 at 11.4%compounded monthly over seven years. Knowingthat the 11.4% represents the market interest rate, yourealize that the monthly payment in actual dollars willbe $736.67. If the average monthly general inflationrate is expected to be 0.6%, determine the equivalentequal monthly payment series in constant dollars.Suppose that you borrow $60,000 at 9% compounded monthly over five years. Knowing that the 9% represents the market interest rate, you compute the monthly payment in actual dollars as $1,245.51. If the average monthly general inflation rate is expected to be 0.25%, determine the equivalent equal monthly payment series in constant dollars.Consider the following table for an eight-year period: Year T-bill return Inflation 1 7.47 % 8.53 % 2 8.94 12.16 3 6.05 6.76 4 5.97 5.04 5 5.63 6.52 6 8.54 8.84 7 10.74 13.11 8 13.00 12.34 Calculate the average return for Treasury bills and the average annual inflation rate (consumer price index) for this period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Average return for Treasury bills % Average annual inflation rate % Calculate the standard deviation of Treasury bill returns and inflation over this time period. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Standard deviation of Treasury bills % Standard deviation of inflation % Calculate the real return for each year. (A negative answer should be indicated by a minus sign. Leave no cells…
- The annual inflation rate is expected to be 4.78% and the nominal (annual) interest rate is 5.75%. What is the real interest rate?1, Consider the following table for an eight-year period: Year T-bill return Inflation 1 7.47% 8.53% 2 8.94 12.16 3 6.05 6.76 4 5.97 5.04 5 5.63 6.52 6 8.54 8.84 7 10.74 13.11 8 13.00 12.34 a, Calculate the average return for Treasury bills and the average annual inflation rate (consumer price index) for this period. b, Calculate the standard deviation of Treasury bill returns and inflation over this time period. c, Calculate the real return for each year. d, What is the average real return for Treasury bills?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 = 0.90 % E(2r1) = 2.05 % L2 = 0.09 % E(3r1) = 2.15 % L3 = 0.12 % E(4r1) = 2.45 % L4 = 0.14 % Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
- 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 = 2.00 % E(2r1) = 2.90 % L2 = 0.06 % E(3r1) = 3.30 % L3 = 0.08 % E(4r1) = 3.75 % L4 = 0.13 % Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) 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 = 2.00 % E(2r1) = 2.90 % L2 = 0.06 % E(3r1) = 3.30 % L3 = 0.08 % E(4r1) = 3.75 % L4 = 0.13 % Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Years Current (Long-term) Rates 1 % 2 % 3 % 4 %Which one is the approximate periodic interest rate % on a Treasury bill that you purchase for 4,908 $ that will mature in 270 days for 5,000 $? (Assume one year is 360 days)Based on economists forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 1R1 = 0.50% E(21) = 0.88%L2 = 0.06%E(3г 1) = 0.98%L3 = 0.13%E(4r1) = 1.28%L4 = 0.16% Calculate the yield to maturity for four years