# Using the data provided in Table 1, construct the yield curves… 1 answer below »

Using the data provided in Table 1, construct the yield curves for August 1991, August 1992, and November 1992.

2. Evaluate the change in the shape of the yield curve between (a) August 1991 and August 1992, and (h) August 1992 and November 1992 using expectations theory and market segmentation theory. 3. Calculate the one-year forward rates of interest implied by the November 1992 yield curve over the period 1993-2002. 4. Using the one-year forward rates obtained in Question 3, calculate the expected annual inflation rate in each of the next ten years, and use this information to obtain the average rate of price ap-preciation preciation expected over the 1993-2002 period. In your calculations, assume a strict expect tions theory approach to nominal interest rate construction, where: = krw + Expected inflation premium 5. Examine the information provided in Table 2. Do these data lead you to believe that the annual inflation rates you calculated in Question 4 might be incorrect? Why or why not? 6. Using the data provided in Tables I and 2, prepare a revised estimate of (a) the one-year for-ward interest rates implied by the November 1992 yield curve over the 1993-2002 period; and (b) the expected annual inflation rate in each of these years. 7. How would the yield curve for (a) an AAA-rated firm, (b) a B-rated firm, and (c) a C-rated firm, differ from the Treasury security yield curve you constructed in Question 1? Plot the individual yield curves for each of these risky securities to demonstrate your answer.

2. Evaluate the change in the shape of the yield curve between (a) August 1991 and August 1992, and (h) August 1992 and November 1992 using expectations theory and market segmentation theory. 3. Calculate the one-year forward rates of interest implied by the November 1992 yield curve over the period 1993-2002. 4. Using the one-year forward rates obtained in Question 3, calculate the expected annual inflation rate in each of the next ten years, and use this information to obtain the average rate of price ap-preciation preciation expected over the 1993-2002 period. In your calculations, assume a strict expect tions theory approach to nominal interest rate construction, where: = krw + Expected inflation premium 5. Examine the information provided in Table 2. Do these data lead you to believe that the annual inflation rates you calculated in Question 4 might be incorrect? Why or why not? 6. Using the data provided in Tables I and 2, prepare a revised estimate of (a) the one-year for-ward interest rates implied by the November 1992 yield curve over the 1993-2002 period; and (b) the expected annual inflation rate in each of these years. 7. How would the yield curve for (a) an AAA-rated firm, (b) a B-rated firm, and (c) a C-rated firm, differ from the Treasury security yield curve you constructed in Question 1? Plot the individual yield curves for each of these risky securities to demonstrate your answer.

Don't use plagiarized sources. Get Your Custom Essay on

Using the data provided in Table 1, construct the yield curves…
1 answer below »

Just from $13/Page

Attachments: