Asked by
David Gomez
on Dec 20, 2024
Verified
What would be the interest rate on a 10-year Treasury note, given the following information?
kpr = 1%
MR = 0.1% for a 1-year loan, increasing by 0.1% each additional year.
LR = 0.5% for a security with low liquidity and 1.0% for one with very low liquidity.
DR= 0 for a 1-year loan, 0.1% for a 2-year loan, increasing by 0.15 % for each additional
year.
Expected inflation rates:
Year 1 = 3.0%
Year 2 = 4.0%
Year 3 and thereafter: 5.0%
A) 6.7%
B) 7.0%
C) 7.2%
D) 8.1%
Treasury Note
A medium-term government debt security with fixed interest rates and maturities typically ranging from 1 to 10 years.
Default Risk
The possibility that a borrower fails to meet the legal obligations or conditions of a debt.
Liquidity Risk
Refers to the uncertainty of a company's ability to meet its short-term financial commitments due to an inability to convert assets to cash quickly without significant loss.
- Understand the components and calculation of interest rates for various financial instruments.
Verified Answer
SK
Learning Objectives
- Understand the components and calculation of interest rates for various financial instruments.