eBook A company's 5-year bonds are yielding 9% per year. Treasury bonds with the same maturity are yielding 4.6% per year, and the real risk-free rate (r*) is 2.65%. The average inflation premium is 1.55%, and the maturityisk premium is estimated to be 0.1 x (t-1)%, where t = number of years to maturity. If the liquidity premium is 1.1%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. % Grade it Now Save & Continue Continue without saving

eBook A company's 5-year bonds are yielding 9% per year. Treasury bonds with the same maturity are yielding 4.6% per year, and the real risk-free rate (r*) is 2.65%. The average inflation premium is 1.55%, and the maturityisk premium is estimated to be 0.1 x (t-1)%, where t = number of years to maturity. If the liquidity premium is 1.1%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. % Grade it Now Save & Continue Continue without saving

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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Suppose Home Depot issues 30-year bonds on which it pays a 4.00% (nominal) interest rate. Further, suppose that both Home Depot and the purchasers of its bonds anticipate inflation will average 2.00% during the life of the loan. Now suppose the inflation rate after the loan is made (i.e. after the bond is purchased) is actually 1.00% per annum. It follows that the actual real rate of interest is and, ceteris paribus, are (is) better off than anticipated as a result of the difference between the anticipated and the actual rate of inflation. Select one: a. 2.00%, Bondholders b. 2.00%, Home Depot O c. 3.00%, Bondholders d. 3.00%, Home Depot
Keys Corporation's 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the liquidity premium for Keys' bonds is LP = 0.5% versus zero for T- bonds, 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 default risk premium (DRP) on Keys' bonds? 1.17% 1.30% 1.43% 1.57% 1.73%
Kiss the Sky Enterprises has bonds on the market making annual payments, with 11 years to maturity, and selling for $960. At this price, the bonds yield 11.0 percent. What must the coupon rate be on the bonds?
eBook A company's 5-year bonds are yielding 9% per year. Treasury bonds with the same maturity are yielding 4.2% per year, and the real risk-free rate (r*) is 2.35%. The average inflation premium is 1.45%, and the maturity risk premium is estimated to be 0.1 x (t-1) %, where t = number of years to maturity. If the liquidity premium is 0.8%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %
eBook The real risk-free rate, r*, is 1.7%. Inflation is expected to average 1.5% a year for the next 4 years, after which time inflation is expected to average 5.1% a year. Assume that there is no maturity risk premium. An 11-year corporate bond has a yield of 8.3%, which includes a liquidity premium of 0.3%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places. %
User You are considering buying bonds in ACBB, Inc. The bonds have a par value of $1,000 and mature in 14 years. The annual coupon rate is 14.0% and the coupon payments are annual. The bond are currently selling $799.68 based on a yield to maturity of 18%. What is the bond expected capital gain/loss if the bond are held maturity’s ?
XYZ Corp.'s outstanding bonds have a $10,000 par value and they mature in 20 years. Their yield-to-maturity is 8%, annual coupon rate is 6%, and semi-annual compounding. (a) What's the bond's current market price? (b) What is the bond's current yield?
If 10-year T-bonds have a yield of 4.0%, 10-year corporate bonds yield 7.6%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.23% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond? Round 2 decimal places
A Treasury bond that matures in 10 years has a yield of 4.50%. A 10-year corporate bond has a yield of 9.25%. Assume that the liquidity premium on the corporate bond is 0.25%. What is the default risk premium on the corporate bond? Round your answer to two decimal places. %
Daves Corporation bonds have a 10yr maturity, a 6.25% semi-annual coupon, and a par value of $1,000. The going interest rate (rs) is 4.75%, based on semiannual compounding. What is the bond price?
Koy Corporation's 5-year bonds yield 8.15%, and 5-year T-bonds yield 4.90%. The real risk-free rate is r* = 3.10%, the inflation premium for 5-year bonds is IP=1.40%, the liquidity premium for Koy's bonds is LP = 0.75% versus zero for T-bonds, 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 default risk premium (DRP) on Koy's bonds? Not Answered 4.00% b O Ob. 3.25% 3 O Oc2.10% O d. 2.85% O e 2.50%
The price of the coupon paying bond is $1071. The firm has estimated that its cost of debt is 8.5%. The bond has a maturity of 15 years and paid semi-annually. What is the annual coupon rate of this FCB? 8.03% 9.35% 9.03% 8.35% 7.35%

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