06 Case model - 06 Case model 3/22/2010 7:09 2/17/2006...

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06 Case model 3/22/2010 7:09 2/17/2006 Chapter 6. Interest Rates PART E INPUT DATA Real risk free rate 3% Expected inflation of 5% for the next year. Expected inflation of 6% for the following year. Expected inflation of 8% thereafter. MRP of 0.10% for each year after 1 Maturity (in years) = 1 1-year Treasury yield = r* + + 1-year Treasury yield = 3.00% + 5.00% + 0.00% 1-year Treasury yield = 8.00% Maturity (in years) = 10 10-year Treasury yield = r* + + 10-year Treasury yield = 3% + 7.50% + 0.90% 10-year Treasury yield = 11.40% 1 10 Maturity (in years) = 20 20 20-year Treasury yield = r* + + 20-year Treasury yield = 3% + 7.75% + 1.90% 20-year Treasury yield = 12.65% PART H Suppose that you observe the following term structure for Treasury securities: Maturity Yield 1 year 6.0% 2 years 6.2% 3 years 6.4% 4 years 6.5% 5 years 6.5% This spreadsheet model is designed to be used in conjunction with the chapter's integrated case and the related PowerPoint slide presentation. Suppose most investors expect the inflation rate to be 5% next year, 6% the following year, and 8%
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This note was uploaded on 03/21/2010 for the course BUSINESS AB102 taught by Professor Woo during the Spring '10 term at Nanzan.

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06 Case model - 06 Case model 3/22/2010 7:09 2/17/2006...

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