Yields on debt securities are affected by credit risk, tax status, liquity and term to maturity....
Long-term investments cannot include: Multiple Choice Held-to-maturity debt securities. Securities with maturity dates within three months. Equity securities giving an investor insignificant influence over an investee. Equity securities giving an investor significant influence over an investee. Available-for-sale debt securities.
Consider the following zero‐coupon yield curve developed from current yields on risk-free securities: Maturity (years) Zero-Coupon Yield 1 2 4 5 4.80% 5.00% 5.20% 5.50% 5.80% The forward rate for year 4 (the forward rate quoted today for an investment that begins in three years and matures in four years) is closest to: 5.50% а. 1.38% b. 5.35% С. 6.40% Od. 5.97% е. Ln
35. Credit Risk. A bond's credit rating provides a guide to its risk. Suppose that long-term bonds rated Aa currently offer yields to maturity of 7.5%. A-rated bonds sell at yields of 7.8%. Sud- pose that a 10-year bond with a coupon rate of 7.6% is downgraded by Moody's from an Aa to A rating. (L06-5) a. Is the bond likely to sell above or below par value before the downgrade? b. Is the bond likely to sell above or...
Investment securities portfolio help to offset credit risk exposure means: a. High-quality securities can be purchased and held to balance out the risk from loans. b. Their price can never go down. c. They will never default. d. They are protected against interest rates change. 13. Function(s) of a bank's security portfolio is (are) to: a. Increase tax exposure. b. Increase credit risk exposure. c. Provide a back-up source of liquidity. d. All of the above. 14. When interest rates...
Question 35 3 pts Currently, Bloom Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Bloom's debt currently has an 3.2% yield to maturity. The risk- free rate (FRF) is 3.6%, and the market risk premium (rm-rRF) įs 7.3%. Using the CAPM, Bloom estimates that its cost of equity is currently 12.7%. The company has a 24% tax rate. Bloom's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the...
Problem 6-12 Maturity Risk Premium An investor in Treasury securities expects inflation to be 1.55% in Year 1, 3.35% in Year 2, and 4.05% each year thereafter. Assume that the real risk-free rate is 1.55% and that this rate will remain constant. Three-year Treasury securities yield 6.55%, while 5-year Treasury securities yield 8.30%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Round your answer to two decimal...
In footnotes to its 2016 annual report, Bancfirst Corp. reported that held-to-maturity debt securities with an amortized cost of $4,365 thousand had an estimated fair value of $4,403 thousand. a. What amount does Bancfirst report on its 2016 balance sheet for these held-to-maturity securities? b. If these debt securities had instead been classified as available-for-sale securities, how would Bancfirst’s pretax income have been affected
After-tax cost of debt. Given the following: Yield to maturity (Before tax cost of debt) = 12% Tax Rate = 40% Please calculate the after-tax cost of debt.
The following table summarizes the yields to maturity on several one-year, zero coupon securities: Security yield Treasury 3.15 AAA corporate 3.23 BBB corporate 4.27 B corporate 4.94 A. What is the price(expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? B. What is the credit spread on AAA-rated corporate bonds? C. What is the credit spread on B-rated coporate bonds? D. How does this credit spread change with the bond rating?...
The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75% for the next 2 years. A 2-year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security? 65 6-6 INFLATION CROSS-PRODUCT An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free...