Please show work A oneyear bond currently pays 5 interest an

Please show work

A one-year bond currently pays 5% interest and two-year bond currently pays 5.5%. If the term premium for two-year bonds is 0.2% what is the expected interest rate on one-year bond next year?

A)
4.975%
B)
5.6%
C)
4.5%
D)
4.75%

A one-year bond currently pays 1.2% interest. It\'s expected that it will pay 1.8% next year and 3.2% the following year. The two-year term premium is 0.1% while the three-year term premium is 0.25%. What is the interest rate on a three-year bond according to the liquidity premium theory?

A)
2.07%
B)
2.17%
C)
2.32%
D)
6.45%

What is a correct risk premium on 10 year municipal bonds with 2.5% yield if 10 year Treasury bonds have 3% yield and your marginal federal income tax rate is 30%?
13)
_____

A)
3%.
B)
2.1%.
C)
0.4%.
D)
-0.5%.

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year?
10)
_____

A)
25 percent
B)
10 percent
C)
5 percent
D)
-5 percent

Solution

Ans 1)

(1+5.5%)^2=(1+5%)(1+x%+0.2%)

(1.055^2/1.05)-1=x%+0.2%

x=5.6%

Hence option C is correct response

Ans 4)

return would be calculated as (50+1200-1000)/1000=25%

Hence option A is correct response

Ans 3)

Rate on Municipal Bond-Real Interest for treasury bond (1-tax rate)=Risk Premium

2.5%-3%(1-0.3)=0.4%

HEnce correct answer is option C