MBA 612 Week 7 Quiz With Complete Questions And
Answers A+ Graded
Assume investors demand a real rate of return equal to 3 percent and that there is no
maturity risk premium associated with Treasury securities. According to the Wall Street
Journal, the average nominal yields on risk-free Treasury securities with different
maturities are:
Type of security
Yield
1-year
4.5%
2-year
4.6
3-year
4.8
4-year
5.0
What is the one-year nominal interest rate and the inflation premium that is expected in
Year 4? - ANSWER 5.6%; 2.6%
Assume that the current interest rate on a 1-year bond is 8 percent, the current rate on
a 2-year bond is 10 percent, and the current rate on a 3-year bond is 12 percent. If the
expectations theory of the term structure is correct, what is the 1-year interest rate
expected during Year 3? (Base your answer on an arithmetic rather than geometric
average.) - ANSWER 16.0%
Assume that, to help build your nest-egg, you made two deposits of $100, one on
January 1, 2014, and one on July 1, 2014, in a savings account that paid 10 percent
compounded semi-annually. On January 1, 2015, the bank increased the interest rate
paid on savings accounts to 12 percent, annual compounding. Then you made a third
$100 deposit on April 1, 2015. How much should there be in your account on January 1,
2016? - ANSWER Choose 1 of the following.
Answers A+ Graded
Assume investors demand a real rate of return equal to 3 percent and that there is no
maturity risk premium associated with Treasury securities. According to the Wall Street
Journal, the average nominal yields on risk-free Treasury securities with different
maturities are:
Type of security
Yield
1-year
4.5%
2-year
4.6
3-year
4.8
4-year
5.0
What is the one-year nominal interest rate and the inflation premium that is expected in
Year 4? - ANSWER 5.6%; 2.6%
Assume that the current interest rate on a 1-year bond is 8 percent, the current rate on
a 2-year bond is 10 percent, and the current rate on a 3-year bond is 12 percent. If the
expectations theory of the term structure is correct, what is the 1-year interest rate
expected during Year 3? (Base your answer on an arithmetic rather than geometric
average.) - ANSWER 16.0%
Assume that, to help build your nest-egg, you made two deposits of $100, one on
January 1, 2014, and one on July 1, 2014, in a savings account that paid 10 percent
compounded semi-annually. On January 1, 2015, the bank increased the interest rate
paid on savings accounts to 12 percent, annual compounding. Then you made a third
$100 deposit on April 1, 2015. How much should there be in your account on January 1,
2016? - ANSWER Choose 1 of the following.
