The Wall Street Journal reports that the rate on three-year Treasury securities is 7.00 percent, and the six-year Treasury rate is 6.20 percent. From discussions with your broker, you have determined that expected inflation premium is 2.25 percent next year, 2.50 percent in Year 2, and 2.50 percent in Year 3 and beyond. Further, you expect that real interest rates will be 4.4 percent annually for the foreseeable future. Calculate the maturity risk premium on the 3-year Treasury security.
A. 0.00 percent
B. 0.10 percent
C. 4.50 percent
D. 2.60 percent
Answers: 1
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Consider a firm with a contract to sell an asset for $149,000 four years from now. the asset costs $85,000 to produce today. a. given a relevant discount rate of 14 percent per year, calculate the profit the firm will make on this asset. (a loss should be indicated by a minus sign. do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. at what rate does the firm just break even?
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The Wall Street Journal reports that the rate on three-year Treasury securities is 7.00 percent, and...
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