Which fluctuate more long-term or short-term interest rates? Why?Suppose you believe that the economy is just entering a recession. Your firm must raise capital immediately, and debt will be used. Should you borrow on a long-term or a short-term basis? Why?What does it mean when it is said that the United States is running a trade deficit? What impact will a trade deficit have on interest rates?You read in the Wall Street Journal that 30-day T-bills are currently yielding 5.5%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of currentinterest rate premiums:-Inflation premium= 3.25%-Liquidity premium= 0.6%-Maturity risk premium= 1.8%-Default risk premium= 2.15%On the basis of these data, what is the real risk-free rate of return?The real risk-free rate is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yeild on 2-year Treasury securities? What is the yield on 3-year Treasury securities?A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Assume that the liqudity premium on the coroporate bond is 0.5%. What is the default risk premium on the corporate bond?The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security?
