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One-year Treasury securities yield 5.3%, 2-year Treasury securities yield 5.8%,  and 3-year Treasury securities yield 5.7%. Assume that the expectations theory  holds. What does the market expect will be the yield on 1-year Treasury  securities two years from now?

According to pure expectations theory, the maturity risk premium is _________. 

One-year Treasury securities yield 5.3%, 2-year Treasury securities yield 5.8%,  and 3-year Treasury securities yield 5.7%. Assume that the expectations theory  holds. What does the market expect will be the yield on 1-year Treasury  securities two years from now?

T. Martell Inc.’s stock has a 40% chance of producing a 12% return, a  36% chance of producing a 5% return, and a 24% chance of producing a  -9% return. What is Martell’s expected return? 

The real risk-free rate of interest is 1 percent.  Inflation is expected to be 5 percent this  coming year, jump to 6 percent next year, and increase to 7 percent the year after (Year 3).   According to the expectations theory, what should be the interest rate on 1-year, risk-free  securities today?

Suppose the real risk-free rate is 4%, the average future inflation rate is  1.9%, a maturity premium of 0.05% per year to maturity applies, i.e., MRP =  0.05%(t), where t is the years to maturity.  Suppose also that a liquidity premium  of 0.7% and a default risk premium of 1% applies to A-rated corporate bonds.   How much higher would the rate of return be on a 9-year A-rated corporate  bond than on a 5-year Treasury bond.  Here we assume that the pure  expectations theory is NOT valid.   

Suppose the real risk-free rate is 3.6%, the average future inflation rate is  2.3%, a maturity premium of 0.06% per year to maturity applies, i.e., MRP =  0.06%(t), where t is the years to maturity.  Suppose also that a liquidity premium  of 0.7% and a default risk premium of 0.7% applies to A-rated corporate bonds.   How much higher would the rate of return be on a 7-year A-rated corporate  bond than on a 5-year Treasury bond.  Here we assume that the pure  expectations theory is NOT valid.   

T. Martell Inc.’s stock has a 36% chance of producing a 15% return, a  22% chance of producing a 10% return, and a 42% chance of producing a  -12% return. What is Martell’s expected return? 

You observe the following yield curve for Treasury securities: Maturity             Yield 1 Year                2.00% 2 Years              3.30% 3 Years              4.10% 4 Years              4.60% 5 Years              6.60% Assume that the pure expectations hypothesis holds.  What does the market expect will be  the yield on 3-year securities, 2 year from today?

The risk-free rate is 3.3 percent.  Stock A has a beta = 2 and Stock B has a beta = 1. Stock A has a required return of 9.2 percent.  What is Stock B’s required return?