Which is a commonly used proxy for the "risk-free rate"? A The average historical interest rate...
Which is a commonly used proxy for the "risk-free rate"?
A The average historical interest rate on long-term government bonds
B The current market rate interest rate on a government-insured savings account
C The current yield to maturity on a long-term government bond
D The rate of return on a low volatility stock
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Which is a commonly used proxy for the "risk-free rate"?
A The average historical interest rate...
What do investors sometimes use as a proxy for the risk-free rate? 6) What do investors...
What do investors sometimes use
as a proxy for the risk-free rate?
6) What do investors sometimes use as a proxy for the risk-free rate? 7) How would you define the market risk premium? 8) Given the following historical returns, what was the historical risk premium of Corporate bonds?, what was the historical risk premium for Small stocks?, What was the historical risk premium for the "Market"? Corporate bonds: 6.6% Inflation: 3% S&P 500: 11.5% Treasury Bills: 4.5% Treasury bonds:...
Assume that the real risk-free rate is 2% and that the maturity risk premium is zero....
Assume that the real risk-free rate is 2% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5% and a 2-year Treasury bond yields 8%, what is the 1-year interest rate that is expected for Year 2? Calculate this yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. % What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to...
A stock that has a high beta typically has a. high market or asset price risk....
A stock that has a high beta typically has a. high market or asset price risk. b. zero market or asset price risk. c. low market or asset price risk. d. returns that match those of bonds. e. high yield to maturity. Because stocks have ________ asset price risk or volatility relative to bonds, their long-term average rate of return tends to be _________ relative to bonds. a. greater; higher b. greater; lower c. less; higher d. less; lower e....
3. Suppose that the short-term risk-free interest rate this year is r1 8% and that the...
3. Suppose that the short-term risk-free interest rate this year is r1 8% and that the expected value of next year's interest rate is r2 7.5%. Suppose that a two-year zero coupon bond with face value $1000 sells for $820. a. What is the yield to maturity of the 2-year zero? b. Your answer to (a) demonstrates that the yield curve can slope upward even if the market thinks that interest rates are likely to fall. To explain this result,...
suppose that the short-term risk-free interest rate this year is ri-8% and that the expected value...
suppose that the short-term risk-free interest rate this year is ri-8% and that the expected value of next year's interest rate is r2-7.5%. Suppose that a two-year zero coupon bond with face value $1000 sells for $820. a. What is the yield to maturity of the 2-year zero? b. Your answer to (a) demonstrates that the yield curve can slope upward even if the market thinks that interest rates are likely to fall. To explain this result, calculate the forward...
Calculating interest rates problem: 3. Calculating interest rates The real risk-free rate (r*) is 2.8% and...
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...
16. Problem 6.15 EXPECTATIONS THEORY Assume that the real risk-free rate is 2% and that the maturity...
16. Problem 6.15 EXPECTATIONS THEORY Assume that the real risk-free rate is 2% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 6.4% and a 2-year Treasury bond yields 6.7%. Calculate the yield using a geometric average. What is the 1-year interest rate that is expected for Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % What inflation rate is expected during Year 2? Do not round intermediate calculations....
3. Consider the situation with the following initial values. The risk-free rate of return is 3 pe...
3. Consider the situation with the following initial values. The risk-free rate of return is 3 percent, and the expected return on the market is 8.7 percent. Stock A has a beta coefficient of 1.4, a dividend growth rate of 5 percent, and a current dividend of $2.60 per share. (a) (5 points) What is the value of the stock? (b) (5 points) If the current market price of the stock is $27 per share, what should you do? (c)...
The rate of return on which type of security is normally used as the risk-free rate of return? Multiple Choice Long-ter...
The rate of return on which type of security is normally used as the risk-free rate of return? Multiple Choice Long-term Treasury bonds Treasury bills Intermediate-term Treasury bonds oooo Long-term corporate bonds Intermediate-term corporate bonds
Beautiful New Homes, Inc., has a bond issue with a coupon rate of 5.5 percent that...
Beautiful New Homes, Inc., has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $945. Interest is paid semiannually. The yield to maturity on bonds of comparable risk have yields to maturity of 5.5%. Is this bond a good investment? A. No, because the bond is worth less than the price. B. No, because the bond's yield to maturity is less...
What do investors sometimes use
as a proxy for the risk-free rate?
6) What do investors sometimes use as a proxy for the risk-free rate? 7) How would you define the market risk premium? 8) Given the following historical returns, what was the historical risk premium of Corporate bonds?, what was the historical risk premium for Small stocks?, What was the historical risk premium for the "Market"? Corporate bonds: 6.6% Inflation: 3% S&P 500: 11.5% Treasury Bills: 4.5% Treasury bonds:...
3. Suppose that the short-term risk-free interest rate this year is r1 8% and that the expected value of next year's interest rate is r2 7.5%. Suppose that a two-year zero coupon bond with face value $1000 sells for $820. a. What is the yield to maturity of the 2-year zero? b. Your answer to (a) demonstrates that the yield curve can slope upward even if the market thinks that interest rates are likely to fall. To explain this result,...
suppose that the short-term risk-free interest rate this year is ri-8% and that the expected value of next year's interest rate is r2-7.5%. Suppose that a two-year zero coupon bond with face value $1000 sells for $820. a. What is the yield to maturity of the 2-year zero? b. Your answer to (a) demonstrates that the yield curve can slope upward even if the market thinks that interest rates are likely to fall. To explain this result, calculate the forward...
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...
3. Consider the situation with the following initial values. The risk-free rate of return is 3 percent, and the expected return on the market is 8.7 percent. Stock A has a beta coefficient of 1.4, a dividend growth rate of 5 percent, and a current dividend of $2.60 per share. (a) (5 points) What is the value of the stock? (b) (5 points) If the current market price of the stock is $27 per share, what should you do? (c)...
The rate of return on which type of security is normally used as the risk-free rate of return? Multiple Choice Long-term Treasury bonds Treasury bills Intermediate-term Treasury bonds oooo Long-term corporate bonds Intermediate-term corporate bonds
Beautiful New Homes, Inc., has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $945. Interest is paid semiannually. The yield to maturity on bonds of comparable risk have yields to maturity of 5.5%. Is this bond a good investment? A. No, because the bond is worth less than the price. B. No, because the bond's yield to maturity is less...
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