Question 1:
Nominal Yield on Bond = Real risk free rate + Inflation premium + Liquidity premium + Maturity risk premium + Default risk premium
Nominal yield on bond = 3.20% + 3.90% + 1.70% + 2.80% + 4.90%
Nominal yield on bond = 16.50%
Question 2:
Municipal Bond Yield = Taxable equivalent yield * (1 - 28%)
5.50% = Taxable equivalent yield * 72%
Taxable equivalent yield = 7.64%
Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 4.90 percent....
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1 Problem 6-1 Determinants of Interest Rates for Individual Securities (LG6-6) eBook A particular security's default risk premium is 4 percent. For all securities, the inflation risk premium is 3.85 percent and the real risk- free rate is 2.90 percent. The security's liquidity risk premium is 0.15 percent and maturity risk premium is 0.75 percent. The security has no special covenants. Calculate the security's equilibrium rate of return. (Round your answer to 2 decimal places.) Hint Print Rate of return...
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ut of A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 2.25 percent. The security's liquidity risk premium is 0.75 percent and maturity risk premium is 0.90 percent. The security has no special covenants. What is the security's equilibrium rate of return? O Select one: A. 1.78 percent B . 17.8 percent C. 8.90 percent D. 3.95 percent The Wall Street Journal reports that...
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A particular security’s default risk premium is 3 percent. For all securities, the inflation risk premium is 2.90 percent and the real risk-free rate is 3.50 percent. The security’s liquidity risk premium is 0.10 percent and maturity risk premium is 0.70 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return. (Round your answer to 2 decimal places.)