If your investment horizon is 10 months, the appropriate risk-free rate you would pick would be...
If your investment horizon is 10 months, the appropriate risk-free rate you would pick would be
One-year treasury bill
Ten-year AAA rated corporate bond
Ten-year zero-coupon treasury bond
Ten-year coupon paying treasury bond
Ten-year tax-free municipal bond
Homework Answers
Ten-year zero-coupon treasury bond
Ten year treasury bond will be good proxy of risk free rate, if investment horizon is 10 years.
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If your investment horizon is 10 months, the appropriate
risk-free rate you would pick would be...
Answer the next 3 questions based on the following information: Assume that3-month Treasury bill are yielding...
Answer the next 3 questions based on the following information: Assume that3-month Treasury bill are yielding 1.4%, 10-year Treasury bonds are yielding 2.8%, an Aaa-rated 10-year corporate bond is 5%, and real risk-free rate is 1%. 18) What is the inflation risk premium for 3-month Treasury b ill? (Hint: the inte rest rate of 3-month Treasury bill is a proxy for risk-free rate) A) 1.8% B) 1.4% C) 1% D) 0.4% 19) What is the maturity risk premium for 10-year...
NEED ANSWER RIGHT NOW. PROBLEM DUE IN 5 MINUTES PROBLEM 1 USE ANY METHOD СІ Your...
NEED ANSWER RIGHT NOW. PROBLEM DUE IN 5 MINUTES
PROBLEM 1 USE ANY METHOD СІ Your company currently has $ 1 000 par. 6.75 % coupon bonds with 10 years to maturity and a price of $ e new 10-year coupon bonds at par, what coupon rate do you need to set? Assume that for both bonds, the next coupon payment is due in exactly six months. You need to set a coupon rate of %. (Round to two decimal...
The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected...
The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 5 % per year for each of the next three years and 4% 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 Liukin Holdings Inc.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): RatingDefault Risk PremiumU.S....
"If the investment horizon is equal to the Macaulay duration of the bond, the investor is...
"If the investment horizon is equal to the Macaulay duration of the bond, the investor is hedged against interest rate risk". However, the above statement is only true if interest rates only change before fist coupon payment is received. Using the following bond to show that if interest rate increases 2% between first and second coupon payment dates, the investor is not hedged against interest rate risk even if his duration gap is zero.: A four-year 33.7% annual coupon paying...
For the next 4 questions suppose the following data on yields from WSJ holds: 3-month T-Bill...
For the next 4 questions suppose the following data on yields from WSJ holds: 3-month T-Bill 30-year T-Bond 30-year AAA Corporate 30-year Municipal What is the real risk free rate for 3-month if the inflation for 3 months is estimated as 3.0967 5.0% 72% 8.6% 6.02% 1,8% o 20% 2.2% 2.4% 2.696 What is the maturity risk premium on 30-year Treasury bonds? Assume the expected inflation for 3-month T-Bills and 30-year T-Bonds are the same. 0.8% 10% 1.296 1.896 2.2%...
Problem 14-10 Assume you have a 1-year investment horizon and are trying to choose among three...
Problem 14-10 Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 9.2% coupon rate and pays the $92 coupon once per year. The third has a 11.2% coupon rate and pays the $112 coupon once per year. a. If all three bonds are now priced to...
For the next 4 questions suppose the following data on yields from WSJ holds 3-month T-Bill...
For the next 4 questions suppose the following data on yields from WSJ holds 3-month T-Bill 30-year T-Bond 30-year AAA-Corporate 30-year Municipal 3.0% 14.5% 16.0% 14.2% - What is the real risk-free rate for 3-month if the inflation for 3 months is estimated as 2967 o 1.0% 1.2% 1.5% 1.6% 2.0% QUESTION 49 1 pa What is the maturity risk premium on 30-year Treasury bonds? Assume the expected inflation for 3-month T-Bills and 30-year T-Bonds is the same. 0.8% 1.0%...
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...
Suppose the risk-free interest rate is 4.8% a. Having 5600 today is equivalent to having what...
Suppose the risk-free interest rate is 4.8% a. Having 5600 today is equivalent to having what amount in one year? b. Having 5600 in one year is equivalent to having what amount today? c. Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? a. Having 5600 today is equivalent to having what amount in one year? Having 5600 today is equivalent to having $...
If your investment horizon is 6 years, how would you construct a portfolio in which interest...
If your investment horizon is 6 years, how
would you construct a portfolio in which interest rate and
reinvestment risk are
offset?
100 Bond Price Coupon (paid annually) Time to Maturity 100 7% 5% undated 2 years
Answer the next 3 questions based on the following information: Assume that3-month Treasury bill are yielding 1.4%, 10-year Treasury bonds are yielding 2.8%, an Aaa-rated 10-year corporate bond is 5%, and real risk-free rate is 1%. 18) What is the inflation risk premium for 3-month Treasury b ill? (Hint: the inte rest rate of 3-month Treasury bill is a proxy for risk-free rate) A) 1.8% B) 1.4% C) 1% D) 0.4% 19) What is the maturity risk premium for 10-year...
NEED ANSWER RIGHT NOW. PROBLEM DUE IN 5 MINUTES
PROBLEM 1 USE ANY METHOD СІ Your company currently has $ 1 000 par. 6.75 % coupon bonds with 10 years to maturity and a price of $ e new 10-year coupon bonds at par, what coupon rate do you need to set? Assume that for both bonds, the next coupon payment is due in exactly six months. You need to set a coupon rate of %. (Round to two decimal...
For the next 4 questions suppose the following data on yields from WSJ holds: 3-month T-Bill 30-year T-Bond 30-year AAA Corporate 30-year Municipal What is the real risk free rate for 3-month if the inflation for 3 months is estimated as 3.0967 5.0% 72% 8.6% 6.02% 1,8% o 20% 2.2% 2.4% 2.696 What is the maturity risk premium on 30-year Treasury bonds? Assume the expected inflation for 3-month T-Bills and 30-year T-Bonds are the same. 0.8% 10% 1.296 1.896 2.2%...
Problem 14-10 Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 9.2% coupon rate and pays the $92 coupon once per year. The third has a 11.2% coupon rate and pays the $112 coupon once per year. a. If all three bonds are now priced to...
For the next 4 questions suppose the following data on yields from WSJ holds 3-month T-Bill 30-year T-Bond 30-year AAA-Corporate 30-year Municipal 3.0% 14.5% 16.0% 14.2% - What is the real risk-free rate for 3-month if the inflation for 3 months is estimated as 2967 o 1.0% 1.2% 1.5% 1.6% 2.0% QUESTION 49 1 pa What is the maturity risk premium on 30-year Treasury bonds? Assume the expected inflation for 3-month T-Bills and 30-year T-Bonds is the same. 0.8% 1.0%...
Suppose the risk-free interest rate is 4.8% a. Having 5600 today is equivalent to having what amount in one year? b. Having 5600 in one year is equivalent to having what amount today? c. Which would you prefer, $600 today or $600 in one year? Does your answer depend on when you need the money? Why or why not? a. Having 5600 today is equivalent to having what amount in one year? Having 5600 today is equivalent to having $...
If your investment horizon is 6 years, how
would you construct a portfolio in which interest rate and
reinvestment risk are
offset?
100 Bond Price Coupon (paid annually) Time to Maturity 100 7% 5% undated 2 years
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