ZuoTi.Pro
Question

Given the following, what is the yield to maturity of a corporate bond with the following...

Given the following, what is the yield to maturity of a corporate bond with the following characteristics:

  • Risk-free interest rate = 2.1%
  • Expected inflation rate = 4.6%
  • Real rate of return = 6.7%
  • Default rate premium = 5.1%
  • Liquidity risk premium = 3.2%
  • Maturity risk premium = 2.6%

Enter your answer as a percent rounded to 1 decimal place, but do not include the percent sign in your answer. For example, record 3.28% as 3.3.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

yield to maturity of a corporate bond = risk free interest rate + expected inflation rate + default rate premium + liquidity risk premium + maturity risk premium.

=>2.1 + 4.6+5.1+3.2+2.6

=>17.6

0 0
Add a comment
Know the answer?
Add Answer to:
Given the following, what is the yield to maturity of a corporate bond with the following...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 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...

  • What is the yield on this 5-year corporate bond? A 5-year Treasury bond has a 4.45%...

    What is the yield on this 5-year corporate bond? A 5-year Treasury bond has a 4.45% yield. A 10-yeat Treasury hond yields 6.55%, and a 10-year corporate bond yields 9.1%. The market expects that inflation wilaverage 2.7% over the next 10 years (IP:u= 2.796). Assure that there is no maturity nsk premium (MRP - 0) and that the annual real risk-free rate, 1", will remain constant over the next 10 years. (Hint: Remember that the default nsk premium and the...

  • 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:...

  • 18.  Problem 6.17 INTEREST RATE PREMIUMS A 5-year Treasury bond has a 3.35% yield. A 10-year Treasury...

    18.  Problem 6.17 INTEREST RATE PREMIUMS A 5-year Treasury bond has a 3.35% yield. A 10-year Treasury bond yields 6.25%, and a 10-year corporate bond yields 9.55%. The market expects that inflation will average 3.15% over the next 10 years (IP10 = 3.15%). 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...

  • 10-year Treasury bond has a yield of 4.3%, and a Billy Bob, Inc. corporate bond yields...

    10-year Treasury bond has a yield of 4.3%, and a Billy Bob, Inc. corporate bond yields 7.9%. The maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a .5% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the Billy Bob, Inc. corporate bond? (Answer to the nearest basis point in a % format, x.xx, with no % sign needed.)

  • A 5-year Treasury bond has a 3.75% yield. A 10-year Treasury bond yields 6.15%, and a...

    A 5-year Treasury bond has a 3.75% yield. A 10-year Treasury bond yields 6.15%, and a 10-year corporate bond yields 8.55%. The market expects that inflation will average 3.9% over the next 10 years (IP10 = 3.9%). 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:...

  • A 5-year Treasury bond has a 4.95% yield. A 10-year Treasury bond yields 6.6%, and a...

    A 5-year Treasury bond has a 4.95% yield. A 10-year Treasury bond yields 6.6%, and a 10-year corporate bond yields 8%. The market expects that inflation will average 2.7% over the next 10 years (IP10= 2.7%). 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: DRP...

  • A 5-year Treasury bond has a 4.35% yield. A 10-year Treasury bond yields 6.65%, and a...

    A 5-year Treasury bond has a 4.35% yield. A 10-year Treasury bond yields 6.65%, and a 10-year corporate bond yields 8.65%. The market expects that inflation will average 2.7% over the next 10 years (IP10 = 2.7%). 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...

  • 3. Corporate bond yield - Treasury bond yield = C6 A. Municipal bond yield B. Hypothetical...

    3. Corporate bond yield - Treasury bond yield = C6 A. Municipal bond yield B. Hypothetical yield curve C. Default risk premium D. Default risk premium + liquidity premium E. Municipal bond yield - default risk premium 4. Which of the following statements is true about municipal bonds? C7 A. Municipal bondholders are safer than corporate bonds B. Municipal bonds can be issued by federal, state and local governments C. Municipal bonds have a comparable coupon rate to corporate bond...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT