Business, 06.05.2020 03:19 willveloz4

According to the expectations hypothesis (EH), long-maturity yields reflect expectations about future short-maturity yields. Suppose the EH is false. Specifically, suppose that (1+Y(2))^2 > (1+Y(1))*(1+E[Y(1)]), where the expectation is for next year's one-year rate. What can you conclude?a. Investors are not risk-neutral or some other assumption behind the EH does not hold. b. There is an arbitrage opportunity of buying the two year-bond (lending for two years), while also selling the one-year bond today and selling next year’s one-year bond next year (borrowing today for one year and repaying in ayear by borrowing for another year).c. There is an arbitrage opportunity of selling the two year-bond (borrowing for two years), while also buying theone-year bond today and buying next year’s one-year bond next year (lending today for a year and lending again ina year for one more year).d. All of the above.

Answers: 1

Show answers

Answers

Answer from: EmiHope

Complete Questions: In order

According to the expectations hypothesis (EH), long-maturity yields reflect expectations about future short-maturity yields. Suppose the EH is false. Specifically, suppose that (1+Y(2))^2 > (1+Y(1))*(1+E[Y(1)]), where the expectation is for next year's one-year rate. What can you conclude?

a. Investors are not risk-neutral or some other assumption behind the EH does not hold.

b. There is an arbitrage opportunity of buying the two year-bond (lending for two years), while also selling the one-year bond today and selling next year’s one-year bond next year (borrowing today for one year and repaying in a year by borrowing for another year).

c. There is an arbitrage opportunity of selling the two year-bond (borrowing for two years), while also buying theone-year bond today and buying next year’s one-year bond next year (lending today for a year and lending again ina year for one more year).

d. All of the above.

option b

Explanation:

According to the expectations hypothesis theory, long maturity yields reflect future short maturity yields. If it does not hold such that the two year rate compounded for two years is greater than product of spot rates for two years, this means that there is an arbitrage opportunity. According to the equation given, option B is correct. That is, if we lend for two years, and sell the lesser return bond of one year today and then next year bond is sold for one year, then the lending rate for 2 year would give a higher return.

Answer from: Quest

The federal reserve took an expansionary approach during the crisis. this was done by expanding the money supply and boosting liquidity. this can be seen in the fed's actions of lending to banks, purchasing securities, and lowering the federal funds rate in order to lower overall interest rates. the fed's goal was to increase consumer spending and overall liquidity within the system, and they pursued this by expanding the supply of liquid money.

Answer from: Quest

b is the correct answer

Another question on Business

Business, 21.06.2019 21:00

On june 1 of the current year, chad wilson established a business to manage rental property. he completed the following transactions during june: opened a business bank account with a deposit of $28,000 from personal funds. purchased office supplies on account, $2,690. received cash from fees earned for managing rental property, $7,390. paid rent on office and equipment for the month, $3,310. paid creditors on account, $1,230. billed customers for fees earned for managing rental property, $6,130. paid automobile expenses (including rental charges) for the month, $740, and miscellaneous expenses, $370. paid office salaries, $2,330. determined that the cost of supplies on hand was $1,590; therefore, the cost of supplies used was $1,100. withdrew cash for personal use, $2,210. required: 1. indicate the effect of each transaction and the balances after each transaction: for those boxes in which no entry is required, leave the box blank. for those boxes in which you must enter subtractive or negative numbers use a minus sign. (example: -300) answer

Answers: 1

Answer

Business, 22.06.2019 12:00

Simon, aged 10, is invited to a classmate's birthday party at an exclusive ski resort on march 15th. the day will include 4 hours of snowboarding, lunch and birthday cake. simon's mother checks a box on the invitation that says "yes, we will attend" and returns it to the classmate's address. unfortunately, they later don't attend the party when simon comes down with the flu. on march 17th, simon's mother receives an invoice in the mail from simon's classmate for $35 that says, "party no-show fee." can simon's classmate collect the fee?

Answers: 3

Answer

Business, 22.06.2019 16:50

In terms of the "great wheel of science", statistics are central to the research process (a) only between the hypothesis phase and the observation phase (b) only between the observation phase and the empirical generalization phase (c) only between the theory phase and the hypothesis phase (d) only between the empirical generalization phase and the theory phase

Answers: 1

Answer

Business, 22.06.2019 19:10

According to the textbook chapter, “the emotional connection of distinguishing differences and conflict”, which of the following groups of terms describes best the skills/resources that managers need when managing differences in their organization? energy, commitment, tolerance, and appreciation energy, adequate funding, tolerance, and appreciation funding, tolerance, a strong hr department, and tolerance energy, a strong hr department, patience, and strong leadership skills

Answers: 3

Answer

You know the right answer?

According to the expectations hypothesis (EH), long-maturity yields reflect expectations about futur...

Questions