Econ 3200 Exam 2 questions with |\ |\ |\ |\ |\ |\
answers
The current 1-year bond and 2-year bond interest rates
|\ |\ |\ |\ |\ |\ |\ |\ |\
are both 4% and the 1-year and 2-year term premia are 0
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
and 1%, respectively. The liquidity premium theory of
|\ |\ |\ |\ |\ |\ |\ |\
term structure predicts that the expected 1-year bond
|\ |\ |\ |\ |\ |\ |\ |\
interest rate next year is _____%. - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔2%
The current 1-year bond and 2-year bond interest rates
|\ |\ |\ |\ |\ |\ |\ |\ |\
are both 4% and the market expects the 1-year bond
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rate to go down by 1% next year. This implies
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
that the 2-year term premium is _____%. - CORRECT
|\ |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔0.5% |\
Over the next 3 years, the expected path of 1-year
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rates is 1, 2, 1% and the 1-3-year term premia
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
are 1, 0.2, 0.5.
|\ |\ |\ |\
Today you buy $1 of 1-year bonds and when it matures
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
you to plan to use the money you receive to reinvest in
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
one-year bonds again, then your expected rate of return
|\ |\ |\ |\ |\ |\ |\ |\ |\
for this $1 investment over the next two-year period is
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
_____%. - CORRECT ANSWERS ✔✔3% |\ |\ |\ |\
, Over the next 3 years, the expected path of 1-year
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rates is 1, 2, 1% and the 1-3-year term premia
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
are 1, 0.2, 0.5.
|\ |\ |\
If the expectations theory of term structure is true, then
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
your expected rate of return for buying two-year bond
|\ |\ |\ |\ |\ |\ |\ |\ |\
today over the next two-years is ____%. - CORRECT
|\ |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔3% |\
Over the next 3 years, the expected path of 1-year
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rates is 1, 2, 1% and the 1-3-year term premia
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
are 1, 0.2, 0.5.
|\ |\ |\
If the expectations theory of term structure is true, then
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
the current interest rate on 2-year bond must be ____%. -
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
CORRECT ANSWERS ✔✔1.7% |\ |\
Over the next 3 years, the expected path of 1-year
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rates is 1, 2, 1% and the 1-3-year term premia
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
are 1, 0.2, 0.5.
|\ |\ |\
The liquidity premium theory of term structure predicts
|\ |\ |\ |\ |\ |\ |\ |\
that the current interest rate on 3-year bond is ____%. -
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
CORRECT ANSWERS ✔✔1.83% |\ |\
answers
The current 1-year bond and 2-year bond interest rates
|\ |\ |\ |\ |\ |\ |\ |\ |\
are both 4% and the 1-year and 2-year term premia are 0
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
and 1%, respectively. The liquidity premium theory of
|\ |\ |\ |\ |\ |\ |\ |\
term structure predicts that the expected 1-year bond
|\ |\ |\ |\ |\ |\ |\ |\
interest rate next year is _____%. - CORRECT ANSWERS
|\ |\ |\ |\ |\ |\ |\ |\ |\
✔✔2%
The current 1-year bond and 2-year bond interest rates
|\ |\ |\ |\ |\ |\ |\ |\ |\
are both 4% and the market expects the 1-year bond
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rate to go down by 1% next year. This implies
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
that the 2-year term premium is _____%. - CORRECT
|\ |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔0.5% |\
Over the next 3 years, the expected path of 1-year
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rates is 1, 2, 1% and the 1-3-year term premia
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
are 1, 0.2, 0.5.
|\ |\ |\ |\
Today you buy $1 of 1-year bonds and when it matures
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
you to plan to use the money you receive to reinvest in
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
one-year bonds again, then your expected rate of return
|\ |\ |\ |\ |\ |\ |\ |\ |\
for this $1 investment over the next two-year period is
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
_____%. - CORRECT ANSWERS ✔✔3% |\ |\ |\ |\
, Over the next 3 years, the expected path of 1-year
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rates is 1, 2, 1% and the 1-3-year term premia
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
are 1, 0.2, 0.5.
|\ |\ |\
If the expectations theory of term structure is true, then
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
your expected rate of return for buying two-year bond
|\ |\ |\ |\ |\ |\ |\ |\ |\
today over the next two-years is ____%. - CORRECT
|\ |\ |\ |\ |\ |\ |\ |\ |\
ANSWERS ✔✔3% |\
Over the next 3 years, the expected path of 1-year
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rates is 1, 2, 1% and the 1-3-year term premia
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
are 1, 0.2, 0.5.
|\ |\ |\
If the expectations theory of term structure is true, then
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
the current interest rate on 2-year bond must be ____%. -
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
CORRECT ANSWERS ✔✔1.7% |\ |\
Over the next 3 years, the expected path of 1-year
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\
interest rates is 1, 2, 1% and the 1-3-year term premia
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
are 1, 0.2, 0.5.
|\ |\ |\
The liquidity premium theory of term structure predicts
|\ |\ |\ |\ |\ |\ |\ |\
that the current interest rate on 3-year bond is ____%. -
|\ |\ |\ |\ |\ |\ |\ |\ |\ |\ |\
CORRECT ANSWERS ✔✔1.83% |\ |\
