Q.222 The interest rate charged to AAA corporate borrowers is 7.8% for 5 year bonds. The...
Q.222 The interest rate charged to AAA corporate borrowers is 7.8% for 5 year bonds. The interest rate charged to BBB corporate borrowers is 8.8% for five year bonds. The differences between these two rates of interest can best be explained by the following factors.
a Inflation and Maturity Risk
b Maturity Risk and Default Risk
c Default Risk and Liquidity Risk
d Liquidity Risk and Inflation
e Inflation and Default Risk
Q.288Â Extending the time which a firm takes to pay its trade credit has the effect of:
a Increasing the opportunity cost of using trade credit
b Has no effect on the opportunity cost of using trade credit
c Decreases the opportunity cost of using trade credit
d Reducing the firm’s reliance on trade credit
e None of the above describe the effect of extending the time for which a firm takes to pay its trade credit
Q.322 Ratios are useful for all of the following reasons, except:
a Ratios standardize numbers and facilitate comparisons
b Ratios are used to highlight weaknesses and strengths.
c Ratios help to create projections.
d Ratios help to track individual sales opportunities
e All of the these are reasons that ratios are useful
Homework Answers
The correct answers are
1) c) Default risk and liquidity risk
2) a) Increasing the opportunity cost of using trade credit
3) d) Ratios help to track individual sales opportunities
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Q.222 The interest rate charged to AAA corporate borrowers is
7.8% for 5 year bonds. The...
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?
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...
11) Which of the following typically has the lowest yield? A) 5-year AAA corporate bond B)...
11) Which of the following typically has the lowest yield? A) 5-year AAA corporate bond B) 2-year U.S. Treasury note C) Fed Funds D) 3-month U.S. Treasury bill 12) Debt instruments are also called: A) adjustable notes B) credit instruments C) perpetual securities D) interest rate swaps 13) Which of the following characteristic is NOT fixed on a coupon bond? A) Current yield B) Coupon rate C) Maturity D) Par amount 14) If you purchased a U.S. Treasury at a...
Q Search this course Interest rate premiums Excel Online Structured Activity: Interest rate premi...
Q Search this course Interest rate premiums Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 3% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yelds 8 65%. average 3.6% over the next 10 years (IP10-3.6%). Assume that there is no maturity risk premium (MRP-0) The mar ket expects that inflation will er the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury...
ACLIVIly. Interest rate premiums B Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury...
ACLIVIly. Interest rate premiums B Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 4.5% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 9.8%. The market expects that inflation will average 2.7% over the next 10 years (IP 10 = 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...
A company's 5-year bonds are yielding 7.75% per year. The real risk-free rate (r*) is 2.3%....
A company's 5-year bonds are yielding 7.75% per year. The real risk-free rate (r*) is 2.3%. The average inflation premium is 2.5%; and the maturity risk premium is estimated to be 0.1 × (t − 1)%, where t = number of years to maturity. If the liquidity premium is 1%, what is the default risk premium on the corporate bonds? Question 2 options: A) 1.55% B) 1.60% C) 1.65% D) 1.50% E) 1.70% -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- The real risk-free rate is 3%,...
answer what you know ! its short question 6. At present, 20-year Treasury bonds are yielding...
answer what you know ! its short question
6. At present, 20-year Treasury bonds are yielding 4.9% while some 20-year corporate bonds that you are interested in are yielding 9.2 %. Assuming that the maturity-risk premium on both bonds is the same and that the liquidity-risk premium on the corporate bonds is 0.29% while it is 0.0% on the Treasury bonds, what is the default-risk premium on the corporate bonds? Note that a Treasury security should have no default-risk premium....
1. Blazio Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.75%. The real risk-free rate...
1. Blazio Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80%, the default risk premium for Blazio's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Blazio's bonds is LP = 1.10%, 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 inflation premium (IP) on...
The real risk-free rate of interest is expected to remain constant at 3% for the foreseeable...
The real risk-free rate of interest is expected to remain constant at 3% for the foreseeable future. However, inflation is expected to increase steadily over the next 30 years, so the Treasury yield curve has an upward slope. Assume that the pure expectations theory holds. You are also considering two corporate bonds, one with a 3-year maturity and one with a 5-year maturity. Both have the same default and liquidity risks. Given these assumptions, which of these statements is CORRECT?...
Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury band has a 3.5% yield....
Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury band has a 3.5% yield. A 10-year Treasury bond yields 6.6%, and a 10-year corporate bond yields 9.7%. The market expects that Inflation will average 3.6% over the next 10 years (IP10 -3.6). Assume that there is no maturity risk premium (MRP-0) and that the annual real risk-free rate, , will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium...
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?
11) Which of the following typically has the lowest yield? A) 5-year AAA corporate bond B) 2-year U.S. Treasury note C) Fed Funds D) 3-month U.S. Treasury bill 12) Debt instruments are also called: A) adjustable notes B) credit instruments C) perpetual securities D) interest rate swaps 13) Which of the following characteristic is NOT fixed on a coupon bond? A) Current yield B) Coupon rate C) Maturity D) Par amount 14) If you purchased a U.S. Treasury at a...
Q Search this course Interest rate premiums Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 3% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yelds 8 65%. average 3.6% over the next 10 years (IP10-3.6%). Assume that there is no maturity risk premium (MRP-0) The mar ket expects that inflation will er the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury...
ACLIVIly. Interest rate premiums B Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 4.5% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 9.8%. The market expects that inflation will average 2.7% over the next 10 years (IP 10 = 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...
answer what you know ! its short question
6. At present, 20-year Treasury bonds are yielding 4.9% while some 20-year corporate bonds that you are interested in are yielding 9.2 %. Assuming that the maturity-risk premium on both bonds is the same and that the liquidity-risk premium on the corporate bonds is 0.29% while it is 0.0% on the Treasury bonds, what is the default-risk premium on the corporate bonds? Note that a Treasury security should have no default-risk premium....
Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury band has a 3.5% yield. A 10-year Treasury bond yields 6.6%, and a 10-year corporate bond yields 9.7%. The market expects that Inflation will average 3.6% over the next 10 years (IP10 -3.6). Assume that there is no maturity risk premium (MRP-0) and that the annual real risk-free rate, , will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium...
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