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1. A 10 year Treasury Note currently pays a nominal interest rate of 2.25%.  10 year corporate...

1.

A 10 year Treasury Note currently pays a nominal interest rate of 2.25%.  10 year corporate investment grade bonds are currently paying a nominal interest rate of 4.5%. What is the risk premium for corporate bonds?

2.

An insurance agent is trying to sell you an immediate-retirement annuity (big surprise), which for a single amount paid today will provide you with $12,000 at the end of each year for the next 25 years. You currently earn 9% on low risk investments comparable to the retirement annuity. Ignoring taxes, what is the most you would pay for this annuity?

3.

Calculate the yield to maturity for the following bond:
Par = $1000
Coupon = 5% (interest is paid annually)
Years to maturity = 3
Current Value = $800

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Answer #1

1) Risk premium for corporate bonds Return on market-Risk free return (0.045-0.0225) 0.0225 2.25%

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