FINANCE

(Calculating the​ maturity-risk premium​) At​ present, the real​ risk-free rate of interest is 1.81.8​%, while inflation is expected to be 1.81.8​% for the next two years. If a​ 2-year Treasury note yields 5.55.5​%, what is the​ maturity-risk premium for this​ 2-year Treasury​ note?
The​ maturity-risk premium for the​ 2-year Treasury note is
nothing​%. ​(Round to one decimal​ place.)

 

2(Inflation and interest rates​) What would you expect the nominal rate of interest to be if the real rate is 4.34.3 percent and the expected inflation rate is 6.56.5 ​percent?
The nominal rate of interest is
nothing​%. ​(Round to two decimal​ places.)

 

(Interest rate determination​) ​ You’re looking at some corporate bonds issued by​ Ford, and you are trying to determine what the nominal interest rate should be on them. You have determined that the real​ risk-free interest rate is 3.1 %3.1%​, and this rate is expected to continue on into the future without any change. In​ addition, inflation is expected to be constant over the future at a rate of 3.9 %3.9%. The​ default-risk premium is also expected to remain constant at a rate of 2.7 %2.7%​, and the​ liquidity-risk premium is very small for Ford​ bonds, only about 0.06 %0.06%. The​ maturity-risk premium is dependent upon how many years the bond has to maturity. The​ maturity-risk premiums are shown in the popup​ window: LOADING… . Given this​ information, what should the nominal rate of interest on Ford bonds maturing in​ 0-1 year,​ 1-2 years,​ 2-3 years, and​ 3-4 years​ be?
BOND MATURES​ IN:
​MATURITY-RISK PREMIUM:
Data Table
BOND MATURES​ IN:
​MATURITY-RISK PREMIUM:


0-1 year
0.05​%
​ 1-2 years
0.25​%
​ 2-3 years
0.75​%
​ 3-4 years
0.10​%
The nominal rate of interest on Ford bonds maturing in​ 0-1 year should be
nothing​%. ​(Round to two decimal​ places.)
The nominal rate of interest on Ford bonds maturing in​ 1-2 years should be
nothing​%. ​(Round to two decimal​ places.)
The nominal rate of interest on Ford bonds maturing in​ 2-3 years should be
nothing​%. ​(Round to two decimal​ places.)
The nominal rate of interest on Ford bonds maturing in​ 3-4 years should be
nothing​%. ​(Round to two decimal​ places.)
Enter your answer in each of the answer boxes.

 

 

​(Interest rate determination​) If the​ 10-year Treasury bond rate is 6.4 %6.4%​, the inflation premium is 2.4 %2.4%​, and the​ maturity-risk premium on​ 10-year Treasury bonds is 0.3 %0.3%​, assuming that there is no​ liquidity-risk premium on these​ bonds, what is the real​ risk-free interest​ rate?
The real​ risk-free interest rate is
nothing​%. ​(Round to one decimal​ place.)

 

​(Real interest​ rates: approximation method​) If the real​ risk-free rate of interest is 4.2 %4.2% and the rate of inflation is expected to be constant at a level of 2.5 %2.5%​, what would you expect​ 1-year Treasury bills to return if you ignore the cross product between the real rate of interest and the inflation​ rate?
The expected rate of return on​ 1-year Treasury bills is
nothing​%. ​(Round to one decimal​ place.)