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Last week, the CPI was reported as 9%! As a result, nominal interest rates went up significanlty. Did
a) Up
b) Down
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- Along with the crash in the real estate and financial markets, 2008 also was a period of above average inflation. The inflation rate was 5.6% for the 12 months ending June 2008. At the same time, the yield of the US Treasury bond was at 4.53%. Did you notice that the real rate was negative? This means that an investment in a 30-year US Treasury Bond was not even yielding enough to cover the increase in prices. What was the real return on the 30-year T-bond during that time? Convert your answer to a percent but enter numbers only in your response.In the Global Financial Crisis box in Section 6.1, www.Bloomberg.com reported that the three-month Treasury bill sold for a price of $100.002833 per $100 face value. What is the yield to maturity of this bond, expressed as an EAR? The effective annual rate is ___________%. (Round to five decimal places. A negative yield should be entered as a negative number.)During the last two centuries, after adjustment for inflation, stocks have yielded an average real return on about 7 percent per year, compared with a realr eturn of about 3 percent per year for bond true false
- Assume that over the past 88 years, U.S. Treasury bills had an average return of 3.5% as compared to 6.1% on long-term government bonds. What was the average risk premium on the long-term government bonds?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?A bond par value is $2,000 and the coupon rate is 6 percent. The bond price was $1,946.61 at the beginning of the year and $1,982.79 at the end of the year. The inflation rate for the year was 2.4 percent. What was the bond's real return for the year?
- You invested in long-term corporate bonds and earned 6.1 percent. During that same time period, large-company stocks returned 12.6 percent, long-term government bonds returned 5.7 percent, U.S. Treasury bills returned 4.2 percent, and inflation averaged 3.8 percent. What average risk premium did you earn? Is this good or bad and why?You observe that the current interest rate on short-term U.S. Treasury bills is 4.86 percent. You also read in the newspaper that the GDP deflator, which is a common macroeconomic indicator used by market analysts to gauge the inflation rate, currently implies that inflation is 1.65 percent. What is the approximate real rate of interest on short-term Treasury bills? (Enter your answer as a percent rounded to 2 decimal places.)The following is a list of prices for zero-coupon bonds with different maturities and par valueof $1,000. Suppose the interest rate is compounded once per year (a) What is, according to the expectations theory, the one-year interest rate in the secondyear? (b) What is, according to the expectations theory, the one-year interest rate in the third year?(c) What is, according to the expectations theory, the one-year interest rate in the forth year?
- During a period of severe inflation, a bond offered a nominal HPR of 80% per year. The inflation rate was 70% per year.a. What was the real HPR on the bond over the year?b. Compare this real HPR to the approximation rreal ≈ rnom − i.The inflation rate in the United States has averaged 3% a year since 1900. Use the data in the table below to answer the following question: Average rates of return on Treasury bills, government bonds, and common stocks, 1900–2020. Portfolio Average Annual Rate of Return (%) Average Premium (Extra return versus Treasury bills) (%) Treasury bills 3.7 Treasury bonds 5.4 1.7 Common stocks 11.5 7.8 What was the average real rate of return on Treasury bills, Treasury bonds, and common stocks in that period? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.Suppose the inflation rate is expected to be 7% next year, 5% the followingyear, and 3% thereafter. Assume that the real risk-free rate, r*, will remain at 2% and thatmaturity risk premiums on Treasury securities rise from zero on very short-term bonds(those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity riskpremiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer termT-bonds.a. Calculate the interest rate on 1-, 2-, 3-, 4-, 5-, 10-, and 20-year Treasury securities andplot the yield curve.b. Suppose a AAA-rated company (which is the highest bond rating a firm can have)had bonds with the same maturities as the Treasury bonds. Estimate and plot whatyou believe a AAA-rated company’s yield curve would look like on the same graphwith the Treasury bond yield curve. (Hint: Think about the default risk premium on itslong-term versus its short-term bonds.)c. On the same graph, plot the approximate yield curve of a much riskier…