Answer:
forward rates are determined by investors' expectations of future interest rates.
Explanation:
The expectations theory of the term structure of interest rates states that forward rates are determined by investors' expectations of future interest rates. It suggests that the predicted holding period rate of return of a bond of "x" number of time is equal to the short-term interest rate irrespective of its maturity.
The Expectations theory gives us the opportunity to predict the future outcome of short-term interest rates based on current long-term interest rates.
Answer:
10.68%
Explanation:
Data provided in the question:
Returns on stock : 12%, 16%, 10%, 19%, 15%, -6%
Now,
Geometric average return on the stock is calculated as:
Geometric average return = 
Thus,
For the given returns on stock
Geometric average return
=![[ (1 + 0.12)\times(1 + 0.16)\times(1 + 0.10)\times(1 + 0.19)\times(1 + 0.15)\times(1 + (- 0.06)) ]^{\frac{1}{6}}-1](https://tex.z-dn.net/?f=%5B%20%281%20%2B%200.12%29%5Ctimes%281%20%2B%200.16%29%5Ctimes%281%20%2B%200.10%29%5Ctimes%281%20%2B%200.19%29%5Ctimes%281%20%2B%200.15%29%5Ctimes%281%20%2B%20%28-%200.06%29%29%20%5D%5E%7B%5Cfrac%7B1%7D%7B6%7D%7D-1)
= ![[ 1.12\times1.16\times1.10\times1.19\times1.15\times0.94 ]^{\frac{1}{6}}-1](https://tex.z-dn.net/?f=%5B%201.12%5Ctimes1.16%5Ctimes1.10%5Ctimes1.19%5Ctimes1.15%5Ctimes0.94%20%5D%5E%7B%5Cfrac%7B1%7D%7B6%7D%7D-1)
= ![[1.8384056768]^{\frac{1}{6}}-1](https://tex.z-dn.net/?f=%5B1.8384056768%5D%5E%7B%5Cfrac%7B1%7D%7B6%7D%7D-1)
= 1.1068 - 1
= 0.1068
or
= 0.1068 × 100%
= 10.68%
Answer:
Explanation:
a. If you believe that the term structure next year will be the same as today’s, calculate the return on (i) the 1-year zero and (ii) the 4-year zero.
b. Which bond provides a greater expected 1-year return? O 1-year zero-coupon bond O 4-year zero-coupon bond
The return on one year bond is = 5.2%
The price of 4 year bond today
Price of 4 year bond today = 807.22
If yield curves is unchanged, the bond will have 3-year maturity and price will be
If yield curves is unchanged, the bond will have 3-year maturity and price will be = 854.04
Return
Return = 5.8%
The longer term bond has given the higher return in this case at it's YTM fell during the holding period(4 -year)
Answer:
Consumers should choose to take the flight.
Explanation:
The price of a rental car = $50
Marginal utility from the car = 20 utils
Now find the per dollar utility from car = $50 / 20 = 2.5
The price of a flight = $85
Marginal utility from the flight = 30 utils
Now find the per dollar utility from flight = $85 / 30 = 2.83
Since the per dollar, MU is greater in the case of flight so consumers should choose to take the flight.
A. Which Firm will have Higher Profits in a Recession Period ?
During a recession period trade and industries are unsuccessful and there is allot of unemployment. During the period supply in the market and level of output in the company are likely to be low. Robotic automated process seems to be relatively cheap under high production output in a firm. Also the cost of maintenance of machinery is quite high which the firm can`t cater for during the period. In this period human workers are more recommended as the cost of production will be accounted for due to small numbers of employees where the cost of wages and salaries is quite low.
B. Which Firm will have a Higher Profit During a Boom?
During a boom the industry experiences a period of economic success as demand in the market is high. Automated robotics process are machines and carry out their work with allot of efficiency. Compared to human beings they are relatively faster and more efficient. This will will help the industry meet its high level of production target. They also reduce the cost of production as their maintenance cost is low under large scale production. Human workers seem expensive during this period because cost of wages and salaries is subject per-head.
The Firm with a Higher Beta.
The automated robotics firm will have a higher beta this is because the output will be high leading to increased supply and sale for better profitability. The robots will also function as an asset to the firm increasing the net worth to the company.
