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Exercise 4-31 Algo An analyst estimates that the probability of default on a seven-year AA-rated bond...
An analyst estimates that the probability of default on a seven-year AA-rated bond is 0.44, while...
An analyst estimates that the probability of default on a seven-year AA-rated bond is 0.44, while that on a seven-year A-rated bond is 0.56. The probability that they will both default is 0.40. a. What is the probability that at least one of the bonds defaults? (Round your answer to 2 decimal places.) b. What is the probability that neither the seven-year AA-rated bond nor the seven-year A-rated bond defaults? (Round your answer to 2 decimal places.) Probability c. Given...
Baa-rated bonds currently yield 6%, while Aa-rated bonds yield 5%. Suppose that due to an increase...
Baa-rated bonds currently yield 6%, while Aa-rated bonds yield 5%. Suppose that due to an increase in the expected inflation rate, the yields on both bonds increase by 1% a. Calculate the new confidence index? (Round your answer to 3 decimal places.) Confidence index b. Would this be interpreted as bullish or bearish by a technical analyst? Bullish Bearish
10.00 polnts Exercise 4-21 Algo Let P(A)-0.41, P(B) 0.36, and P(ANB) 0.22 a. Are A and...
10.00 polnts Exercise 4-21 Algo Let P(A)-0.41, P(B) 0.36, and P(ANB) 0.22 a. Are A and B independent events? O Yes because PAIB) PIA Yes because FIA n B)メ。 No because PIA | B) PIA) No because PA n B) #0 b. Are A and B mutually exclusive events? O Yes because PIAI B) PIA) Yes because RA n B) # 0 O No because PIA | B) PIA) @ No because P(A n Β) # O c. What is...
Evaluate the following pure-yield pickup swap: You currently hold a 15-year, AA-rated, 10.0% coupon bond priced...
Evaluate the following pure-yield pickup swap: You currently hold a 15-year, AA-rated, 10.0% coupon bond priced to yield 11.5%. As a swap candidate, you are considering a 15-year, AA-rated, 11.0% coupon bond priced to yield 12.0%. (Assume reinvestment at 11.5%, $1,000 par value, semiannual coupons.) Do not round intermediate calculations. Round your monetary answers to the nearest cent and percentage answers and value of swap to two decimal places. You may use Appendix C to answer the questions. Current Bond...
Berth Construction Inc. Issues 13-year, AA-rated bonds. What is the yield on one of these bonds?
The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next four years and 3% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t-1)%, where is the security's maturity. The liquidity premium (LP) on all Berth Construction Inc.'s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Berth Construction Inc. Issues 13-year, AA-rated bonds. What...
Exercise 5-3 Algo Consider the following cumulative probability distribution. 4 5 P(XSx) 0.08 0.32 0.47 0.69...
Exercise 5-3 Algo Consider the following cumulative probability distribution. 4 5 P(XSx) 0.08 0.32 0.47 0.69 0.84 1 2 a. Calculate P(X s 2). (Round your answer to 2 decimal places.) P(Xs 2) b. Calculate P(X - 2). (Round your answer to 2 decimal places.) PX-2) c. Calculate P(2 s Xs 4). (Round your answer to 2 decimal places.)
Exercise 4-27 Algo The probabilities that stock A will rise in price is 0.56 and that...
Exercise 4-27 Algo The probabilities that stock A will rise in price is 0.56 and that stock B will rise in price is 0.44. Further, if stock B rises in price, the probability that stock A will also rise in price is 0.48. a. What is the probability that at least one of the stocks will rise in price? (Round your answer to 2 decimal places.) Probability b. Are events A and B mutually exclusive? Yes because PA | B)...
A firm with an AA-rating plans to issue one million units of a 10 year-4% bond...
A firm with an AA-rating plans to issue one million units of a 10 year-4% bond with face value $100. After the financial crisis this firm is downgraded to a B-rating. The yield curve increases 0.2% per year. The yield for year 1 is yı=1%, for year 2 is y2=1.2%, y3=1.4% and so on and y10=2.8%. The default spreads are given in the table below. (a) What is the initial amount (before downgrading) the firm wants to raise? [2p] How...
If a bond has an annual probability of default of 6%, 10% and 12% in years...
If a bond has an annual probability of default of 6%, 10% and 12% in years 1, 2 and 3 respectively, what is the probability that it will not be in default at the end of year 3? Show how you derived your answer.
Exercise 4-71 Algo David Barnes and his fiancée Valerie Shah are visiting Hawaii. At the Hawaiian...
Exercise 4-71 Algo David Barnes and his fiancée Valerie Shah are visiting Hawaii. At the Hawaiian Cultural Center in Honolulu, they are told that 2 out of a group of 15 people will be randomly picked for a free lesson of a Tahitian dance. a. What is the probability that both David and Valerie get picked for the Tahitian dance lesson? (Round your answer to 4 decimal places.) Probability b. What is the probability that Valerie gets picked before David...
An analyst estimates that the probability of default on a seven-year AA-rated bond is 0.44, while that on a seven-year A-rated bond is 0.56. The probability that they will both default is 0.40. a. What is the probability that at least one of the bonds defaults? (Round your answer to 2 decimal places.) b. What is the probability that neither the seven-year AA-rated bond nor the seven-year A-rated bond defaults? (Round your answer to 2 decimal places.) Probability c. Given...
Baa-rated bonds currently yield 6%, while Aa-rated bonds yield 5%. Suppose that due to an increase in the expected inflation rate, the yields on both bonds increase by 1% a. Calculate the new confidence index? (Round your answer to 3 decimal places.) Confidence index b. Would this be interpreted as bullish or bearish by a technical analyst? Bullish Bearish
10.00 polnts Exercise 4-21 Algo Let P(A)-0.41, P(B) 0.36, and P(ANB) 0.22 a. Are A and B independent events? O Yes because PAIB) PIA Yes because FIA n B)メ。 No because PIA | B) PIA) No because PA n B) #0 b. Are A and B mutually exclusive events? O Yes because PIAI B) PIA) Yes because RA n B) # 0 O No because PIA | B) PIA) @ No because P(A n Β) # O c. What is...
Exercise 5-3 Algo Consider the following cumulative probability distribution. 4 5 P(XSx) 0.08 0.32 0.47 0.69 0.84 1 2 a. Calculate P(X s 2). (Round your answer to 2 decimal places.) P(Xs 2) b. Calculate P(X - 2). (Round your answer to 2 decimal places.) PX-2) c. Calculate P(2 s Xs 4). (Round your answer to 2 decimal places.)
Exercise 4-27 Algo The probabilities that stock A will rise in price is 0.56 and that stock B will rise in price is 0.44. Further, if stock B rises in price, the probability that stock A will also rise in price is 0.48. a. What is the probability that at least one of the stocks will rise in price? (Round your answer to 2 decimal places.) Probability b. Are events A and B mutually exclusive? Yes because PA | B)...
A firm with an AA-rating plans to issue one million units of a 10 year-4% bond with face value $100. After the financial crisis this firm is downgraded to a B-rating. The yield curve increases 0.2% per year. The yield for year 1 is yı=1%, for year 2 is y2=1.2%, y3=1.4% and so on and y10=2.8%. The default spreads are given in the table below. (a) What is the initial amount (before downgrading) the firm wants to raise? [2p] How...
Exercise 4-71 Algo David Barnes and his fiancée Valerie Shah are visiting Hawaii. At the Hawaiian Cultural Center in Honolulu, they are told that 2 out of a group of 15 people will be randomly picked for a free lesson of a Tahitian dance. a. What is the probability that both David and Valerie get picked for the Tahitian dance lesson? (Round your answer to 4 decimal places.) Probability b. What is the probability that Valerie gets picked before David...
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