Investors expect the inflation rate to be 7% next year, to fall to 5% during the following year, and then to remain at a rate of 3% thereafter. Assume that the real risk free rate, r*, will remain at 2% and that maturity risk premiums on Treasury securities rise from zero on very short term securities to a level of .2% for 1-year securities. Furthermore, maturity risk premiums increase .2% for each year to maturity, up to a limit of 1% on 5-year or longer term T-notes and T-bonds.

QUESTION:
How do I utilize this information to calculate the interest rates on 1-, 2-, 3-, 4-, 5-, 10-, and 20-year Treasury securities?

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Investors expect the inflation rate to be 7% next year, to fall to 5% during the following year, and then to remain at a rate of 3% thereafter. Assume that the real risk free rate, r*, will remain at 2% and that maturity risk premiums on ...

Solution Summary

This solution is comprised of a detailed explanation to answer how to utilize this information to calculate the interest rates on 1-, 2-, 3-, 4-, 5-, 10-, and 20-year Treasury securities.

CalculatingInterestRates.
I am trying to solve the unknown interestrates for each of the following:
Present Value Years Interest rate Future Value
$715 6 $1381
$905 7

Suppose the December CBOT Treasury bond futures contract has a quoted price of 80-07. The T-bond is a 20-year 6% coupon bond and the interest is paid semi-annually. What is the implied annual interest rate inherent in the futures contract?
a) 6.86
b) 7.22
c) 7.60
d) 8.00
e) 8.40

Calculate the future value of $150,000 fifteen year from today based on the following interest:
a. 3%
b. 6%
c. 9%
d. 12%
Calculate the present value of $35,000. 20 years from today based on the following annual discount rates:
a. 3%
b. 6%
c. 9%
d, 12%

Compute the future value of $1,000 compounded annually for
a. 10 years at 5 percent
b. 10 years at 7 percent
c. 20 years at 5 percent
d. Why is the interest earned in part (c) not twice the amount earned in part (a)

Calculating Annuities Due
You want to buy a new sports car from Muscle Motors for $32,000. The contract is in the form of a 72-month annuity due at a 7.75 percent APR (compounded monthly). Your monthly payment will be $? . (Round your answer to 2 decimal places, e.g. 32.16.)
Calculating the Number of Periods
At 12 perce

Calculate the interestrates for:
a. PV=$250; FV=$307; t=3 years
b. PV=$425; FV=$761; t=9 years
c. PV=$25,000 FV=$136,771; t=15 years
d. PV=$40,200; FV=$255,810; t=30 years

CalculatingInterest Rate. Find the interest rate implied by the following combinations of
present and future values:
Present Value Years Future Value
$400 11 $648
$183 4 $249
$300 7 $300
Please show me how you calculated the problem so I can do it for my paper. These are not the

1. Present Values. Compute the present value of a $100 cash flow for the following combinations of discount rates and times:
1. r = 8 percent. t = 10 years.
2. r = 8 percent. t = 20 years.
3. r = 4percent. t = 10 years.
4. r = 4 percent. t = 20 years.
2. Future Values. Compute the future value of a $100 cash flow fo