Q1. Suppose we observe the following rates: 1R1 = 5%, 1R2 = 9%. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year interest rate expected one year from now, E(2r1)? (Do not round intermediate calculations and round your answer to the nearest whole percent)
Q2. The Wall Street Journal reports that the rate on 5-year Treasury securities is 7.15 percent and the rate on 6-year Treasury securities Is 7.65 percent. The 1-year risk-free rate expected in five years is, E(6r1), is 8.25 percent. According to the liquidity premium hypotheses, what is the liquidity premium on the 6-year Treasury security, L6? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Q3. On March 11, 20XX, the existing or current (spot) 1-, 2-, 3-, and 4-year zero coupon Treasury security rates were as follows: 1R1 = 0.70%, 1R2 = 1.30%, 1R3 = 1.70%, 1R4 = 1.85%
Using the unbiased expectations theory, calculate the 1-year forward rates on zero coupon Treasury bonds for years 2, 3, and 4 as of March it 20XX. (Do not round intermediate calculations and round your answers to 2 decimal places.)
Q4. Calculate the price of a 5.3 percent coupon bond with 15 years left to maturity and a market interest rate of 8.0 percent. (Assume interest payments are semiannual.) {Do not round intermediate calculations and round your final answer to 2 decimal places.)
Is this a discount or premium bond?
Q5. A client in the 26 percent marginal tax bracket is comparing a municipal bond that offers a 5.4 percent yield to maturity and a similar-risk corporate bond that offers a 8.00 percent yield.
Determine the equivalent taxable yield. (Round your answer to 2 decimal places.)
Which bond will give the client more profit after taxes?
a. Municipal bond
b. Corporate bond
Q6. A 6.25 percent coupon bond with 19 years left to maturity is offered for sale at $1,095.25. What yield to maturity is the bond offering? (Assume interest payments are semiannual.) (Round your answer to 2 decimal places.)
Q7. Consider a 3.05 percent TIPS with an issue CPI reference of 184.9. At the beginning of this year, the CPI was 191.6 and was at 201.5 at the end of the year.
What was the capital gain of the TIPS in dollars? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
What was the capital gain of the TIPS in percentage? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Q8. Annual dividends of AT&T Corp (T) grew from $0.83 in 2000 to $1.41 in 2012. What was the annual growth rate? (Round your answer to 2 decimal places.)
Q9. Financial analysts forecast Safeco Corp.'s (SAF) growth rate for the future to be a percent Safeco's recent dividend was $1.85.
What is the value of Safeco stock when the required return is 10 percent?
Q10. Ecolap Inc. (ECL) recently paid a $0.48 dividend. The dividend is expected to grow at a 13.50 percent rate. The current stock price is $50.92.
What is the return shareholders are expecting? (Do not round intermediate calculations and round your final answer to 2 decimal places.)