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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The 10-year bonds of Gator Corporation are yielding 8 percent per year. Treasury bonds with the same maturity are yielding 6.4 percent per year. The real risk-free rate (k*) has not changed in recent years and is 3 percent. The average inflation premium is 2.5 percent and the maturity risk premium takes the form: MRP = 0.1%(t - 1), where t = number of years to maturity. If the liquidity premium is 0.5 percent, what is the default risk premium on the corporate bond?
For a company, you plan to buy the following bond: Time to maturity, 6 years; coupon rate, 8%; Coupon payment, annual; Market interest rate, 8%; Face value, $1,000. Using Excel, calculate the duration of the bond. Using Excel, calculate the accumulated value of invested payment(or receipt) when you find market interest rate a year later is now 8%, 9%, and 7%, respectively. Using Excel, calculate geometric average rate of return (or realized compound return).
E-SHIELD Enterprise bonds have a 9% annual coupon rate. The interest is paid semiannually and the bonds mature in 8 years. Their par value is $1,000. If the market's yield to maturity is 8%, what is the value of the bond if paid in semiannual basis? Find the yield to maturity of ABC Enterprise when interest is paid in semiannual.
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. %
Bond P is a premium bond with a 10 percent coupon. Bond D is a 6 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 8 percent, and have five years to maturity. (Assume par value of K1,000)(i) What is the current yield for Bond P and Bond D?(ii) If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond P? For Bond D?(iii)Explain your answers and the interrelationship among the various types of yields.
Squire Inc.'s 5-year bonds yield 12.25%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Squire's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t − 1) × 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Squire's bonds? Select the correct answer. a. 6.57% b. 6.25% c. 6.41% d. 6.73% e. 6.09%
Goatboy Corporation bonds are currently priced at $1182.56 and have 25 years until maturity. The bonds have a 12% coupon rate and pay interest semiannually. The bonds also have a par value of $1000 and a yield to maturity of 10%. Assuming that the YTM stays the same, what would be the bond's capital gians yield if sold next year?
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%
HKABC Limited. has bonds on the market with 13 years to maturity, a yield-to-maturityof 9.2 percent, and a current price of $895.09. The bonds make semi-annual payments.What is the coupon rate?
A Treasury bond that matures in 10 years has a yield of 4.75%. A 10-year corporate bond has a yield of 9.25%. Assume that the liquidity premium on the corporate bond is 0.60%. What is the default risk premium on the corporate bond? Round your answer to two decimal places. %
Keys Corporation's 5-year bonds yield 6.50%, and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, 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)*0.1%, where t = number of years to maturity. Answer the following questions: A. What is the inflation premium (IP) for 5-year bonds? B. What is the default risk premium (DRP) on Keys' bonds? Do not provided hand written solution
Keys Corporation's 5-year bonds yield 5.10% 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) 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Keys' bonds?

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