An analyst made the following assessments: Inflation is expected to be 1% this year, 2% next year, 3%, 4%, 5% on the next succeeding years, and then for the next succeeding years it will be constant throughout at a rate of 7%. The real risk-free rate is expected to remain at 4% for the next 15 years. The maturity risk premium is 0.1%(t), where t = the maturity of the bond in years. A 10-year corporate bond currently yields 15%. Assume that the above assessments are true, what will be the yield on the bond, one year from now assuming that the bond's default and liquidity premium is the same? (In percentage, put percentage sign)

An analyst made the following assessments: Inflation is expected to be 1% this year, 2% next year, 3%, 4%, 5% on the next succeeding years, and then for the next succeeding years it will be constant throughout at a rate of 7%. The real risk-free rate is expected to remain at 4% for the next 15 years. The maturity risk premium is 0.1%(t), where t = the maturity of the bond in years. A 10-year corporate bond currently yields 15%. Assume that the above assessments are true, what will be the yield on the bond, one year from now assuming that the bond's default and liquidity premium is the same? (In percentage, put percentage sign)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Suppose the real risk-free rate of interest is r*=4%�*=4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next two years and 3.90% per year for the next three years. The maturity risk premium is 0.1×(t−1)%0.1×�−1%, where t� is number of years to maturity, a liquidity premium is 0.45%, and the default risk premium for a corporate bond is 1.40%. The average inflation during the first 4 years is2.37% . What is the yield on a 4-year Treasury bond? 4.30% 8.90% 6.75% 7.05% What is the yield on a 4-year BBB-rated bond? 8.90% 7.50% 7.05% 8.45% If the yield on a 5–year Treasury bond is 7.38% and the yield on a 6–year Treasury bond is 7.83%, the expected inflation in 6 years is . (Hint: Do not round intermediate calculations.)
The real risk-free rate is 2.08%, inflation is expected to be 6.17% this year, and the maturity risk premium is zero. What is the equilibrium rate of return on a 1-year Treasury security? (Express your answer as a percent and round your final answer to 2 decimal places.)
The real risk-free rate is 2.5% and inflation is expected to be 2.25% for the next 2 years. A 2-year Treasury security yields 6.75%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place. ______%
Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.25%, and a maturity premium of 0.10% per year to maturity applies, i.e., MRP = 0.10. What rate of return would you expect on a 1-year (short term) Treasury security?
The real risk free rate is 2%. Inflation is expected to be 3% this year, 4% next year, and then 3.5% thereafter. The maturity risk premium is estimated to be 0.0005 x (t-1), where t=number of years to maturity. What is the nominal interest rate on a 7 year treasury security?
Give typing answer with explanation and conclusion to all parts The real risk-free rate, r*, is 2%, and inflation is expected to be 3.0% this year, 3.5% for the next two years; 4.0% the following year, and then 5.0% thereafter. The maturity risk premium is estimated to be 0.05%(t1), where t = number of years to maturity. Liquidity risk premium is 0.7%, default risk premium is 1%. - What are the Treasury yield for 3 years, and 6 years bonds? - What are the Corporate yield for 3 years, and 6 years bonds?
The real risk-free rate is 2.85%. Inflation is expected to be 3.85% this year, 5.15% next year, and 2.4% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note?
The real risk-free rate is 2.5% and inflation is expected to be2.75% for the next 2 years. A 2-year Treasury security yields 5.55%. What is the maturityrisk premium for the 2-year security?
An analyst evaluating securities has obtained the following information. The real rate of interest is 2.4% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.3% next year, 3.3% the following year, 4.3% the third year, and 5.3% every year thereafter. The maturity risk premium is estimated to be 0.1 × (t – 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Round your answer to one decimal place. b. What is the yield on a 5-year T-bond? Round your answer to one decimal place. c. What is the yield on a 5-year corporate bond? Round your answer to one decimal place.
An analyst evaluating securities has obtained the following information. The real rate of interest is 2.9% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.4% next year, 3.4% the following year, 4.4% the third year, and 5.4% every year thereafter. The maturity risk premium is estimated to be 0.1 × (t – 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Round your intermediate calculations and final answer to two decimal places. % b. What is the yield on a 5-year T-bond? Round your intermediate calculations and final answer to two decimal places. % c. What is the yield on a 5-year corporate bond? Round your intermediate calculations and final answer to two decimal places. %
The real risk-free rate is 3%, and inflation is expected to be 3% for the next2 years. A 2-year Treasury security yields 6.3%. What is the maturity riskpremium for the 2-year security?
An analyst evaluating securities has obtained the following information. The real rate of interest is 2.7% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.1% next year, 3.1% the following year, 4.1% the third year, and 5.1% every year thereafter. The maturity risk premium is estimated to be 0.1 x (t-1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Do not round intermediate calculations. Round your answer to one decimal place. 4.80 % Show All Feedback b. What is the yield on a 5-year T-bond? Do not round intermediate calculations. Round your answer to one decimal place. 6.99 % Show All Feedback c. What is the yield on a 5-year corporate bond? Do not round intermediate calculations. Round your answer to one decimal place. 8.49 % Show All Feedback x

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS