Assume you make the following investments: • A $10,000 investment in a 10-year T-bond that yields 7.50%, and • A $20,000 investment in a 10-year corporate bond with an AA rating and a yield of 8.70% Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is 0.60%, what is your estimate of the corporate bond’s default risk premium? 0.84% 1.20% 1.02% 0.60%
Assume you make the following investments: • A $10,000 investment in a 10-year T-bond that yields 7.50%, and • A $20,000 investment in a 10-year corporate bond with an AA rating and a yield of 8.70% Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is 0.60%, what is your estimate of the corporate bond’s default risk premium? 0.84% 1.20% 1.02% 0.60%
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
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Assume you make the following investments:
| • | A $10,000 investment in a 10-year T-bond that yields 7.50%, and |
| • | A $20,000 investment in a 10-year corporate bond with an AA rating and a yield of 8.70% |
Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is 0.60%, what is your estimate of the corporate bond’s default risk premium?
0.84%
1.20%
1.02%
0.60%
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