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dusya [7]
3 years ago
14

One-year Treasury securities yield 4%. The market anticipates that 1-year from now 1-year Treasury securities will yield 2.1%. I

f the pure expectations theory is correct, what should be the yield today for 2-year Treasury securities? Write your answer as a percentage, i.e. for example write 8% as 8.
Business
1 answer:
Lesechka [4]3 years ago
8 0

Answer:

3.05%

Explanation:

According to Pure Expectation Theory, the future short term interest rates are actually the forward rates.

Mathematically,

(1 + r2,0)^2 = (1 + r1,0)^1 * (1 + r1,1)^1

Here,

r2,0 is the rate of interest for 2 year treasury security from today

r1,0 is the rate of the interest for 1 year treasury security from today

r1,1 is the rate of the interest for 2 year treasury security from Year 1

By Putting Values, we have:

(1 + r2,0)^2 = (1 + 0.04)^1 * (1 + 0.021)^1

(1 + r2,0)^2 = 1.06184

By taking square-root on both sides, we have:

(1 + r2,0) = 1.0305

r2,0 = 3.05%

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Answer:

Consider the following calculations. The answer is $135,000.

Explanation:

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Hence, answer is $135,000

7 0
2 years ago
Becka borrowed $420 from her cousin at the rate of 8% per year. If the inflation rate was 2.5% that year, what is her cousin's a
sergij07 [2.7K]

Answer:

5.37%

Explanation:

Real rate of return = \frac{1 + NominalRate}{1 + InflationRate} -1

= \frac{1+0.08}{1+0.025} - 1

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Zinc, LP was formed on August 1, 20X9. When the partnership was formed, Al contributed $10,000 in cash and inventory with a FMV
elena55 [62]
C is the correct answer
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3 years ago
Taggart Inc. is considering a project that has the following cash flow data. What is the projects payback? Year 0 1 2 3 Cash flo
nikdorinn [45]

Answer:

The period of payback of the project is 2.30 years. Therefore, the correct answer is C

Explanation:

We will computing the Cumulative Cash Flow from Year 0 to Year 3

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= -$1,150

Cumulative Cash Flow of Year 1 = Cash Flow of Year 1 + Cash Flow of Year 0

= $500 + (-$1,150)

= -$650

Cumulative Cash Flow of Year 2 =  Cash Flow of Year 2 + Cumulative Cash Flow Cash Flow of Year 1

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= $500 + (-$150)

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Pay back period = 2 + (Cumulative Cash Flow of year 2 / Cash flow of year 3)

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5 0
2 years ago
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