Homework Answers
risk premium = nominal interest rate - risk free rate (i.e.,YTM of comaprable treasuries.)
| AAA securities (5.15%-4.78%) | 0.37% |
| BBB securities (5.47-4.78%) | 0.69% |
| B securities (8.13 - 4.78%) | 3.35% |
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2 of 3 (U complete) This Quiz: 100 pts poss Calculate the risk premium for each...
3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain...
3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 3% per year for each of the next two years and 2% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 1)%, where t is the security's maturity. The liquidity premium (LP) on all Tahoe Hydroponics's bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):...
6 pts This Test: 65 pts This Question: 6 pts 5 of 60 (58 complete) This...
6 pts This Test: 65 pts This Question: 6 pts 5 of 60 (58 complete) This Test: 65 pts possible Some agreed-upon procedures related to generating estimates for key variables in equation (2-1) ollow. a. The current 3-month Treasury bill ate is 2.79 percent, the 30-year Treasury bond rate is 5.45 percent,t the 30-year Aaa-rated corporate bond rate is 6.64 percent is the difference between the calculated average yield on 3-month Treasury bills and the inflation rate c. The d....
5 pts Assume that a 3-year Treasury security yields 3.70%. Also assume that the real risk-free...
5 pts Assume that a 3-year Treasury security yields 3.70%. Also assume that the real risk-free rate (r") is 0.75%, and inflation is expected to be 2 25% annually for the next 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 Star security? Round your answer to two decimal places. Your answer should be between 0.00 and 2.92, rounded to...
3/4 ANNUAL CUPON An investor looks at today's yield to maturities in the Wall Street Journal...
3/4
ANNUAL
CUPON
An investor looks at today's yield to maturities in the Wall Street Journal for debt with 10 year maturities. He observes the following: Rating AAA АА BBB BB YTM 4.49% 4.60% 4.75% 4.95% 5.15% Exxon Mobil (XON) has debt that is AAA rated. Suppose an investor wants to value Exxon bonds that will mature in 10- years. He sees one Exxon bond that pays a 7.875% annual coupon with a face value of $1,000. Bond prices are...
3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 3% per year for each of the next two years and 2% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 1)%, where t is the security's maturity. The liquidity premium (LP) on all Tahoe Hydroponics's bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):...
6 pts This Test: 65 pts This Question: 6 pts 5 of 60 (58 complete) This Test: 65 pts possible Some agreed-upon procedures related to generating estimates for key variables in equation (2-1) ollow. a. The current 3-month Treasury bill ate is 2.79 percent, the 30-year Treasury bond rate is 5.45 percent,t the 30-year Aaa-rated corporate bond rate is 6.64 percent is the difference between the calculated average yield on 3-month Treasury bills and the inflation rate c. The d....
5 pts Assume that a 3-year Treasury security yields 3.70%. Also assume that the real risk-free rate (r") is 0.75%, and inflation is expected to be 2 25% annually for the next 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 Star security? Round your answer to two decimal places. Your answer should be between 0.00 and 2.92, rounded to...
3/4
ANNUAL
CUPON
An investor looks at today's yield to maturities in the Wall Street Journal for debt with 10 year maturities. He observes the following: Rating AAA АА BBB BB YTM 4.49% 4.60% 4.75% 4.95% 5.15% Exxon Mobil (XON) has debt that is AAA rated. Suppose an investor wants to value Exxon bonds that will mature in 10- years. He sees one Exxon bond that pays a 7.875% annual coupon with a face value of $1,000. Bond prices are...
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