Homework Answers
Expected rate of bond = Real risk free rate+ Inflation premium + Maturity risk premium + Default risk premium + Liquidity risk premium
= 0.4%+2.5%+ 1.9%+ 2.9%+ 0.3%
=0.08
Add Answer to:
D Question 1 1 pts You are estimating the correct rate for a small company's bond...
The real risk-free rate, r*, is 1.95%. Inflation is expected to average 2.9% a year for...
The real risk-free rate, r*, is 1.95%. Inflation is expected to average 2.9% a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 8.95%, which includes a liquidity premium of 0.9%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
Given the rate information in the table below, estimate the nominal rate for a AA-rated corporate...
Given the rate information in the table below, estimate the nominal rate for a AA-rated corporate bond. Assume a liquidity premium of 6 basis points. Identify as part of your answer the inflation risk premium, the default risk premium, the maturity premium, and the liquidity premium. 3-month T-bills 4.0% 30-year Treasury Bonds 6.0% AA-rated Corp. Bonds 8.0% Inflation Rate 2.5%
A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.1%, and a...
A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 9.4%. The market expects that inflation will average 2.9% over the next 10 years (IP10 = 2.9%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1), 4.2% (Year 2), and 4.6% thereafter. The maturity risk premium (MRP) is equal to 0.079(t-1)%, where t-the bond's maturity. A 4-year corporate bond yields 8%, what is the yield on a 10-year corporate bond that has the default risk and liquidity premiums 1% higher than that of the 4-year corporate bond?
The real risk-free rate of interest...
23. (a) = 4% You are given the following data for a corporate bond in a...
23. (a) = 4% You are given the following data for a corporate bond in a particular economy: r* = real risk-free rate Inflation premium Maturity risk premium = 1% Default risk premium Liquidity premium = 7% = 3% = 2% Assume that a highly liquid market does not exist for long-term Treasury bonds in that economy, and the expected rate of inflation is constant. Given these conditions find the appropriate rates for a Treasury bill and a long-term Treasury...
An investor is interested in purchasing a ten year bond. Find the appropriate maturity risk premium....
An investor is interested in purchasing a ten year bond. Find the appropriate maturity risk premium. 2.9% 1.9% 1.0% 0.9% The real risk-free rate 2.75% and inflation is expected to be 2.25% for the next 5 years. A corporate bond that matures in 5 years has a yield of 9.75% and a default risk premium of 1.15%. What is the liquidity premium for this security if the maturity risk premium is 1.45%? 3.25% 6.90% 1.25% 2.15% Matthew takes out a...
Which of the following equations is NOT correct? Quoted rate = quota risk-free rate + default risk...
Which of the following equations is NOT correct? Quoted rate = quota risk-free rate + default risk premium + liquidity premium + maturity risk premium Quoted interest rate minus real risk-free rate = Inflation premium Maturity risk premium + marketability premium = Nominal rate minus quoted risk-free rate Maturity risk premium + marketability premium + default risk premium = Nominal rate minus quoted risk-free rate You are the chief financial officer (CFO) of a regional bank in New Orleans. As you...
D Question 1 5 pts Assume that a 3-year Treasury security yields 5.00%. Also assume that...
D Question 1 5 pts Assume that a 3-year Treasury security yields 5.00%. Also assume that the real risk-free rate rs 0.75%, and inflation is expected to be 2.25% annually for the next 3 years. In addition to inflation, the nominal interest rate also includes a maturity risk premium (MRP) that reflects interest rate risk. What is the maturity risk premium for the 3-year security? Round your answer to two decimal places Your answer should be between 0.00 and 2.92,...
The real risk-free rate of interest, is 3%, and it is expected to remain constant over...
The real risk-free rate of interest, is 3%, and it is expected to remain constant over time. Inflation is expected to be 2% per year for the next 3 years and 4% per year for the next 5 years. The maturity risk premium is equal to 0.1 x (t-1) %, where t = the bond’s maturity. The default risk premium for a BBB-rated bond is 1.3%. a- What is the average expected inflation rate over the next 4 years? b-What...
Urmar Question 23 1 pts Drongo Corporation's 4-year bonds currently yield 4.1 percent and have an...
Urmar Question 23 1 pts Drongo Corporation's 4-year bonds currently yield 4.1 percent and have an inflation premium of 1.4%. The real risk-free rate of interest, r', is 1.4 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t-1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 1 percent and are believed to be the same for all bonds issued by...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1), 4.2% (Year 2), and 4.6% thereafter. The maturity risk premium (MRP) is equal to 0.079(t-1)%, where t-the bond's maturity. A 4-year corporate bond yields 8%, what is the yield on a 10-year corporate bond that has the default risk and liquidity premiums 1% higher than that of the 4-year corporate bond?
The real risk-free rate of interest...
23. (a) = 4% You are given the following data for a corporate bond in a particular economy: r* = real risk-free rate Inflation premium Maturity risk premium = 1% Default risk premium Liquidity premium = 7% = 3% = 2% Assume that a highly liquid market does not exist for long-term Treasury bonds in that economy, and the expected rate of inflation is constant. Given these conditions find the appropriate rates for a Treasury bill and a long-term Treasury...
An investor is interested in purchasing a ten year bond. Find the appropriate maturity risk premium. 2.9% 1.9% 1.0% 0.9% The real risk-free rate 2.75% and inflation is expected to be 2.25% for the next 5 years. A corporate bond that matures in 5 years has a yield of 9.75% and a default risk premium of 1.15%. What is the liquidity premium for this security if the maturity risk premium is 1.45%? 3.25% 6.90% 1.25% 2.15% Matthew takes out a...
D Question 1 5 pts Assume that a 3-year Treasury security yields 5.00%. Also assume that the real risk-free rate rs 0.75%, and inflation is expected to be 2.25% annually for the next 3 years. In addition to inflation, the nominal interest rate also includes a maturity risk premium (MRP) that reflects interest rate risk. What is the maturity risk premium for the 3-year security? Round your answer to two decimal places Your answer should be between 0.00 and 2.92,...
Urmar Question 23 1 pts Drongo Corporation's 4-year bonds currently yield 4.1 percent and have an inflation premium of 1.4%. The real risk-free rate of interest, r', is 1.4 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t-1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 1 percent and are believed to be the same for all bonds issued by...
Most questions answered within 3 hours.
-
Raising a heavy load requires work. Raising it in half the time
requires:
asked 4 minutes ago -
Calculate the number of valence electrons for
[Mo(C6H6)(CO)3]
asked 2 minutes ago -
MGT-201: Marketing Management
Before deciding on the structure of the channel marketers must
take several factors...
asked 4 minutes ago -
1. ACLs allow a router to control traffic within a network. The
concept is very similar...
asked 5 minutes ago -
35. When the electron in a hydrogen atom falls from its first
excited energy level to...
asked 7 minutes ago -
A man is dragging a box of mass "m" by using a rope which rests
on...
asked 23 minutes ago -
Liquid octane
(CH3(CH2)6CH3) will
react with gaseous oxygen (O2) to produce gaseous carbon
dioxide (CO2) and...
asked 25 minutes ago -
For the reaction N2(g) +
O2(g) --> 2NO(g), if the initial
concentration of NO was 0.00M...
asked 28 minutes ago -
On a recent quiz, the class mean was 75 with a standard
deviation of 2.2. Calculate...
asked 44 minutes ago -
Discuss the Coefficient of Restitution in an elastic collision
compared to the Coefficient of Restitution in...
asked 48 minutes ago -
Pretend that you are
the audit manager on an annual financial statement audit engagement
for a...
asked 57 minutes ago -
A certain lens focuses light from an object 1.65 m away as an
image 41.8 cm...
asked 57 minutes ago