Drongo Corporation’s 3-year bonds currently yield 5.7 percent and have an inflation premium of 2.8%. The...
Drongo Corporation’s 3-year bonds currently yield 5.7 percent and have an inflation premium of 2.8%. The real risk-free rate of interest, r*, is 2.4 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t - 1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company’s bonds total 0.3 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 5.2 percent for years 4, 5, and 6, what is the yield on a 6-year bond for Drongo Corporation?
Homework Answers
yield on 6 year=yield on 3 year+difference in inflation
premium+difference in maturity risk prmeium
=5.7%+(5.2%*3+2.8%*3)/6-2.8%+0.1%*(6-1)-0.1%*(3-1)
=7.20%
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Drongo Corporation’s 3-year bonds currently yield 5.7 percent
and have an inflation premium of 2.8%. The...
Urmar Question 23 1 pts Drongo Corporation's 4-year bonds currently yield 4.1 percent and have an...
Urmar Question 23 1 pts Drongo Corporation's 4-year bonds currently yield 4.1 percent and have an inflation premium of 1.4%. The real risk-free rate of interest, r', is 1.4 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t-1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 1 percent and are believed to be the same for all bonds issued by...
Higgins’ 5-year bonds yield 5.10% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the liquidity premium for Higgins' bon...
Higgins’ 5-year bonds yield 5.10% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the liquidity premium for Higgins' bonds is LP = 0.5% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Higgins' bonds?
6. Moore Corporation has 6-year bonds. Inflation premium (IP) on a 6year bond is 1.00%. The...
6. Moore Corporation has 6-year bonds. Inflation premium (IP) on a 6year bond is 1.00%. The real risk-free rate is r* = 2.80%, the default risk premium for Moore's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Moore's bonds is LP= 1.20%, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) x 0.1%, where t = number of years to maturity. What is the yield on...
20. Suppose 10-year corporate bonds have a yield of 8%, and 10-year T-bonds yield 5%. The...
20. Suppose 10-year corporate bonds have a yield of 8%, and 10-year T-bonds yield 5%. The real risk-free rate is r* 1.80%, the inflation premium for 10-year bonds is IP = 2%, the default risk premium for corporate bonds is DRP -1% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP -(t-1) * 0.1%, wheret - number of years to maturity. What is the liquidity premium (LP) on corporate bonds?
Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%....continues
Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP =1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP= (t - 1) ´ 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds?
4. Johnson Corporation has 5-year bonds. Inflation premium (IP) on a 5 year bond is 1.00x....
4. Johnson Corporation has 5-year bonds. Inflation premium (IP) on a 5 year bond is 1.00x. The real risk-free rate is r = 2.80%, the default risk premium for Johnson's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Johnson's bonds is UP 1.25%, and the maturity risk premium for all bonds is found with the formula MRP = (t-1) * 0.1%, where t= number of years to maturity. What is the yield on Johnson Corporation's...
Crockett Corporation's 5-year bonds yield 6.35%, and 5-year T-bonds yield 4.45%. The real risk-free rate is...
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5-year Treasury bonds yield 6.1%. The inflation premium (IP) is 1.9%, and the maturity risk premium...
5-year Treasury bonds yield 6.1%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year T-bonds is 0.4%. There is no liquidity premium on these bonds. What is the real risk-free rate, r*? a. 3.80% b. 3.42% c. 3.69% d. 4.45% e. 4.03%
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Problem 2: (2 points) Keys Corporation's 5-year bonds yield 6.50%, and 5-year T-notes yield 4.40%. The...
Problem 2: (2 points) Keys Corporation's 5-year bonds yield 6.50%, and 5-year T-notes yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5 years bonds is IP = 1.50%, the liquidity premium for Keys' bonds is LP = 0.5% versus zero for T-notes, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1)*0.1%, where t = number of years to maturity. What is the default risk premium...
Urmar Question 23 1 pts Drongo Corporation's 4-year bonds currently yield 4.1 percent and have an inflation premium of 1.4%. The real risk-free rate of interest, r', is 1.4 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t-1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 1 percent and are believed to be the same for all bonds issued by...
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20. Suppose 10-year corporate bonds have a yield of 8%, and 10-year T-bonds yield 5%. The real risk-free rate is r* 1.80%, the inflation premium for 10-year bonds is IP = 2%, the default risk premium for corporate bonds is DRP -1% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP -(t-1) * 0.1%, wheret - number of years to maturity. What is the liquidity premium (LP) on corporate bonds?
4. Johnson Corporation has 5-year bonds. Inflation premium (IP) on a 5 year bond is 1.00x. The real risk-free rate is r = 2.80%, the default risk premium for Johnson's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Johnson's bonds is UP 1.25%, and the maturity risk premium for all bonds is found with the formula MRP = (t-1) * 0.1%, where t= number of years to maturity. What is the yield on Johnson Corporation's...
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