Due to economic uncertainty, the required real rate of return has increased. This will most likely: A) Increase the default risk premium, inflation risk premium, and real rates B) Increase interest rate risk premium, real rates, and default risk premium C) Increase real rates, interest rate risk premium, and decrease nominal rates D) Increase nominal rates E) Decrease nominal rates as long as inflation remains the same
This will kost likely B) Increase interest rate risk premium, real rates, and default risk premium
Due to economic uncertainty, the required real rate of return has increased. This will most likely:...
If the rate of inflation increases from 3% to 6%, we would most likely expect that nominal interest rates will remain unchanged and the real interest rate will increase by 3%. nominal interest rates will increase by 6% and the real interest rate will fall by 3%. nominal interest rates will remain unchanged and the real interest rate will also remain unchanged as the risk of default will most likely increase. nominal interest rates, real interest rates and risk of...
1- Changes in the ________ probably do not affect the required rate of return by investors. a. risk-free rate b. money supply c. risk premium d. budget deficit e. All of these choices affect the required rate of return. 2- Which of the following is not a reason for bank failures? a. fraud b. liquidity crisis c. increased competition d. a low loan default percentage e. All of these choices are reasons for bank failures. 3- The risk premium on...
3. Calculating interest rates The real risk-free rate (r) is 2.80% and is expected to remain constant into the future. Inflation is expected to be 3.20% per year for each of the next four years and 2.00% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.10 x(t-1)%, where is the security's maturity. The liquidity premium (LP) on all Tahoe Hydroponics's bonds is 0.60%. The following table shows the current relationship between bond ratings and default risk premiums...
Find the required return for
securities A and B.
The real rate of interest is currently 2%
*Please show work
The real rate of interest is currently 296, find the required return for securities A and B Inflation maturity premium Time to Default riskLiquidity Maturity risk premium 1.596 2.5% premium 1.0% 1.596 premium 0.596 2.06 Security A 3 years 9.06 Security B 15 years 7.06
4. Calculating interest rates Aa Aa E The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next three years and 3% 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 Pellegrini Southern Inc.'s bonds is 1.05%. The following table shows the current relationship between bond ratings and...
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 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):...
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...
It changes over time, depending on the expected rate of return on productive assets exchanged among Real risk-free rate market participants and people's time preferences for consumption This is the rate on a U.S. Treasury bill or a U.S. Treasury bond This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power inflation premium over time It is based on the bond's rating: the higher the rating, the lower the premium added, thus...
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...