Let the probability of default be pd
Hence,
(1+1.5%)=(1+7%)*(1-pd)+0*pd
=>pd=1-(1+1.5%)/(1+7%)
=>pd=5.14%
(C) The nominal policy rate is 1.5%. The market rate on a AAA corporate bond is 7%. Find the probability of default...
Suppose the nominal policy interest rate in New Zealand is 1.5% (recall that this rate is called Official Cash Rate or OCR), it is risk-free. The expected inflation rate is 1.7%. Further suppose that the nominal interest rate at which New Zealand businesses can borrow is 4.7%, please call this rate the nominal borrowing rate. a. Calculate the exact real policy interest rate and the approximate real policy interest rate. b. Calculate the exact and approximate real borrowing rates? c....
Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.) Select one: A. $692.04 O B. $696.57 C. $962.50 D. $1,000.00 The 10-year Treasury rate is 4.5 percent while the average 10-year Aaa corporate bond debt carries an interest rate of 6.0 percent. What is the average default risk premium on Aaa corborate bonds? Select one: A. 2.25 percent B. 1.95 percent C....
When a corporation is in default and is forced into bankruptcy, bondholder claims on corporate assets for satisfaction of amounts due them are ranked ahead of common stockholders but after preferred stockholders' claims are satisfied. ahead of preferred stockholder claims but after common stockholders' claims are satisfied. ahead of both common stockholders' claims and preferred stockholders' claims. after both common stockholders' claims and preferred stockholders' claims are satisfied. A bond indenture is a requirement that states the bond in question...
A corporate bond yields 10% per year, whereas the risk-free rate is 5%. Assume a recovery rate of 80% on the corporate bond. What is the market-implied one year default probability of the corporate bond?
QUESTION 3 Consider the following information regarding corporate bonds: Rating Average Default Rate Recession Default Rate Average Beta |вв AAA 0.096 0.09% 0.05 B |ссс A BB AA 0.09% 0.296 0.49% 2.196 8.0% 5.2% 9.996 43.0% 1.0% 3.0% 16.0% 3.0% |1.0 0.05 0.26 0.31 0.17 0.05 Rearden Metal has a bond issue outstanding with ten years to maturity, a yield to maturity of 8.6% , and a B rating. The bondholders expected loss rate in the event of default is...
There is a corporate bond in the market that is selling for $1,350.82 each, stated rate of interest of 8.15% with a maturity of 7 years. What is the yield-to-maturity (YTM) of this bond? a. 5.26% b. 0.66% c. 2.63% d. 1.31%
I only need part (c) and if possible the questions after it Suppose you are thinking of investing on a Corporate bond that has a potential to go into default. It promises to pay $80.00 at the end of every year for 4 years as well as pay the face value of $1,000 at the end of the 4h year. Today is the 1 day of year 1 a) (s points): What is the coupon rate of this 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...
Given the rate information in the table below, estimate the nominal rate for a AA-rated corporate bond. Assume a liquidity premium of 6 basis points. Identify as part of your answer the inflation risk premium, the default risk premium, the maturity premium, and the liquidity premium. 3-month T-bills 4.0% 30-year Treasury Bonds 6.0% AA-rated Corp. Bonds 8.0% Inflation Rate 2.5%
1.There is a corporate bond in the market that is selling for $1,245.84 each, stated rate of interest of 7.81% with a maturity of 7 years. What is the yield-to-maturity (YTM) of this bond? a. 1.89% b. 0.94% c. 7.56% d. 3.78% 2. You are eyeing an investment in a corporate bond which has a YTM of 6.00%, and a stated rate of interest of 15.00% with a maturity of 30 years. What is the price of this bond? a....