Interest Rate on Treasury Securities Assignment | Homework For You

Suppose the inflation rate is expected to be 6% next year, 4.9% the following year, and 2.9% thereafter. Assume that the real risk-free rate, r*, will remain at 1.7% and that maturity 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 risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds.

Calculate the interest rate on 1-year Treasury securities. Round your answer to two decimal places. %

Calculate the interest rate on 2-year Treasury securities. Round your answer to two decimal places. %

Calculate the interest rate on 3-year Treasury securities. Round your answer to two decimal places. %

Calculate the interest rate on 4-year Treasury securities. Round your answer to two decimal places. %

Calculate the interest rate on 5-year Treasury securities. Round your answer to two decimal places.%

Calculate the interest rate on 10-year Treasury securities. Round your answer to two decimal places.%

Calculate the interest rate on 20-year Treasury securities. Round your answer to two decimal places.%

Select the correct yield curve based on these data.

1. The correct sketch is -Select-ABCD .
5. 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 what you believe a AAA-rated company’s yield curve would look like on the same graph with the Treasury bond yield curve. (Hint: Think about the default risk premium on its long-term versus its short-term bonds.)
6. The yield risk curve for the AAA-rated corporate bonds will -Select-rise abovefall belowbe the same as the yield curve for the Treasury securities.
10. What will be the approximate yield curve of a much riskier lower-rated company with a much higher risk of defaulting on its bonds?
11. The yield risk curve of a much riskier lower-rated company will be -Select-abovebelowthe same as the yield curve for the Treasury securities and -Select-abovebelowthe same as the yield curve for the AAA-rated corporate bonds.
13. are you able to show how to calculate these out?. Get Finance homework help today