Finance

posted by .

Given her evaluation of current economic conditions, Ima Nutt believes there is a 20 percent probability of recession, a 50 percent chance of continued steady growth, and a 30 percent probability of inflationary growth. For each possibility, Ima has developed an interest rate forecast for long-term Treasury bond interest rates:
ECONOMIC FORECAST INTEREST RATE FORECAST

Recession 6 percent
Constant growth 9 percent
Inflation 14 percent


A. What is the expected interest rate under Ima's forecast?



B. What is the variance and standard deviation of Ima's interest rate forecast?



C. What is the coefficient of variation of Ima's interest rate forecast?



D. If the current long-term Treasury bond interest rate is 8 percent, should Ima consider purchasing a Treasury Bond? Why or why not?

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. managerial finance

    The growth rate in dividends for IBM for the next five years is expected to be 19 percent. Suppose IBM meets this growth rate in dividends for the next five years and then the dividend growth rate falls to 5 percent indefinately. Assume …
  2. math

    A bond has an average return of 6.8 percent and a standard deviation of 4.6 percent. What range of returns would you expect to see 68 percent of the time?
  3. Finance

    Marcel Co is growing quickly. Dividends are expected to grow at a 30 percent rate for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 13 percent and the company just …
  4. Integrated Physics and Chemistry

    What is IMA? I'm given a picture of a pulley system and I was told to find the IMA of that pulley system. Buuut i don't know how to find the IMA, there are no numbers given in the picture. So what is IMA and how do I find it?
  5. finance

    Austin Electronics expects sales next year to be at $900,000 if the economy is strong, $650,000 if the economy is steady, and $375,000 if the economy is weak. The firm believes there is a 15 percent probability the economy will be …
  6. finance

    Austin Electronics expects sales next year to be at $900,000 if the economy is strong, $650,000 if the economy is steady, and $375,000 if the economy is weak. The firm believes there is a 15 percent probability the economy will be …
  7. finance

    A firm wishes to maintain an internal growth rate of 4.5 percent and a dividend payout ratio of 60 percent. The current profit margin is 7.5 percent and the firm uses no external financing sources. What must the total asset turnover …
  8. Finance

    DBP Inc. just paid a dividend of $2.50. The expected growth rate of dividend is 5 percent. The required return for investors in the first three years is 12 percent and 10 percent for the following three years. After those six years …
  9. Finance

    Universal Laser, Inc., just paid a dividend of $3.30 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year, indefinitely. Investors require a return of 15 percent on the stock for the first three …
  10. Finance

    A7X Corp. just paid a dividend of $1.90 per share. The dividends are expected to grow at 22 percent for the next eight years and then level off to a growth rate of 6 percent indefinitely. If the required return is 13 percent, what …

More Similar Questions