Homework Answers
(a) Yield of a two year bond = (2.2%+1.8%)/2
= 2.00%
(b) Yield of a three year bond = (2.2%+1.8%+2.9%)/3
= 2.30%
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Calculating interest rates problem:
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Assignment 06 - Interest Rates 4. Calculating interest rates Aa Aa The real risk-free rate (r*)...
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Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0 (today) 5° 70 2 99 10° 3 What is the yield to maturity of a 3-year zero-coupon bond? A. 9.00% B. 6.99% c. 7.03% D. 7.49% O E. None of the options
3. Calculating interest rates The real risk-free rate (r) is 2.80% and is expected to remain...
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Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant....
Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year for each of the next three years and 5% 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 Rinsemator Group’s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating...
3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain...
3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 3% per year for each of the next two years and 2% 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 Tahoe Hydroponics's bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):...
3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain...
3. Calculating interest rates 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 two 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 Harrington Horticulture Co.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums...
4. Calculating interest rates Aa Aa E The real risk-free rate (r*) is 2.8% and is...
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Calculating interest rates problem:
3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year for each of the next four years and 5% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 10%, where t is the security's maturity. The liquidity premium (LP) on all Harrington Horticulture Co.'s bonds is 1.05%. The following table shows the current relationship between bond ratings...
e. Suppose most investors expect the inflation rate to be 5% next year, 6% the following year, and 8% thereafter. The real risk-free rate is 3%. The maturity risk premium is zero for bonds that mature in 1 year or less and 0.1% for 2-year bonds; then the MRP increases by 0.1% per year thereafter for 20 years, after which it is stable. What is the interest rate on 1-, 10-, and 20-year Treasury bonds? Draw a yield curve with...
Assignment 06 - Interest Rates 4. Calculating interest rates Aa Aa The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year for each of the next two years and 5% 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 Global Satellite Corp.'s bonds is 0.55%. The following table shows the current relationship...
Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0 (today) 5° 70 2 99 10° 3 What is the yield to maturity of a 3-year zero-coupon bond? A. 9.00% B. 6.99% c. 7.03% D. 7.49% O E. None of the options
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