Financial Markets Assignment. It's A Questions And Answers (Term Paper Sample)

Financial Markets
Student’s Name:
Institutional Affiliation:
 DATE \@ "MMMM d, yyyy" August 31, 2017

Question #1
If the expectations theory is correct, whereby the short term interest rates are equal to forward rates, then,
The forward rates are f(t, t+Ѕ),
= (t, t+Ѕ)/f
= (6*6.5)/10
= 3.9%
According to the liquidity preference theory, the investor will always demand higher interest rate securities or premium with long-term maturity rates. These often carry greater risks since all factors are held at a constant. In this case,
= (f(t, t+Ѕ)
= 4.5(6*6+.5)
= 164.25
b and c
Using the formula below, the swap rates were as follows
Sami-annual compounding
t123456z (r)23.54%27.45%28.90%31.43%32.54%34.24%


= 2[(1-3(6)/1.09482*3)]
R(t) = 0.38640
d. According to the figures above (discount rates = 164.25; market discount factors =...