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- Please answer each of the following questions in detail and provide in-text citations in support of your argument. Include examples whenever applicable. Make sure to provide examples for each of the questions below. 2. Describe the meaning of the yield curve. Verify how the shape of the yield curve provides predictions on the economy in future years. Please visit the US Governments’Based on economics forecast and analysis, one year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows 5.65%, 6.75% 6.85% 7.15% respectively and the liquidity premium from 2nd year to 4th year is 0.05%, 0.10%, 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.Define and discuss the portfolio-balance effect in terms of Quantitative Easing and its impact on bond and stock
- What are the key factors that most affect the level and shape of the yield curve?View Solution:prove that bond yields and bond prices are inversely related?The unbiased expectation theory and liquidity premium theory are two important theories to explain the shape of yield curve. Discuss and compare the two theories
- What does the risk structure of interest rates measure? Is the current structure of U.S. rates consistent with your impressions of the health of the U.S economy and the corporate and housing sectors? Give specific examples.Which of the following is a true statement? a. In a bubble, the price of the asset is the expected present value of its future returns. b. The overall real value of the stock market may fluctuate significantly over a year. c. The higher the one-year interest rate, the higher the present discounted value of a payment next year. d. The yield curve normally slopes down.If expectations of future short-term interest rates suddenlyfell, what would happen to the slope of the yield curve?
- Which of the following is NOT a primary factor that influences the shape of the yield curve? a. International interest rates b. Level of business activity c. Federal budget surplus d. Immigration e. Federal Reserve policiestraditional yield management strategies are most appropriate when? A. The service providers has a homogeneous target market B. Its target market is not price sensitive C. All members of the target market arrive at basically the same time D. Those who arrive early or reserve early are more price sensitive than those who reserve or arrive late E. All of the target market is equally price sensitiveIdentify two different Theories of Interest Rate determination. List two characteristics of each theory identified above.