It is December 31, 2021, and your firm is considering issuing debt to invest in a project with indefinite life. The firm's current and target debt ratio is 40%. 30-Year corporate bonds with similar credit rating and time to maturity are presently offering a credit/default spread of 1.75%. You additionally have the following data available on Treasury rates: U.S. Government Interest Rates as of December 31, 2021 Maturity 1-Year 10-Year 30-Year YTM 2.73% 2.79% 3.12%

It is December 31, 2021, and your firm is considering issuing debt to invest in a project with indefinite life. The firm's current and target debt ratio is 40%. 30-Year corporate bonds with similar credit rating and time to maturity are presently offering a credit/default spread of 1.75%. You additionally have the following data available on Treasury rates: U.S. Government Interest Rates as of December 31, 2021 Maturity 1-Year 10-Year 30-Year YTM 2.73% 2.79% 3.12%

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

It is December 31, 2021, and your firm is considering issuing debt to invest in a project with
indefinite life. The firm's current and target debt ratio is 40%. 30-Year corporate bonds with similar
credit rating and time to maturity are presently offering a credit/default spread of 1.75%. You
additionally have the following data available on Treasury rates:
U.S. Government Interest Rates as of December 31, 2021
Maturity
1-Year
10-Year
30-Year
Historically, 30-Year Treasuries have averaged about 4.18%, and similar corporate bonds have
averaged a spread of 0.75%. Based on these data, what is your estimate of the project's cost of
debt?
4.18%
4.87%
O 1.75%
4.54%
YTM
2.73%
2.79%
3.12%
O 3.12%

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Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 9 years to maturity, and a coupon rate of 8.1 percent paid annually. If the YTM is 10.1 percent, what is the current bond price in euros?
Suppose a state of Iowa zero coupon bond will pay $1000 at par ten years from now with no annual payments over the 10 year period. if the going interest rate on these 10 year bonds is 4.9% how much is the bond worth today a) 669.37 b) 464.84 c) 619.79 d) 650.78 e) 625.99
The real risk-free rate of interest is 1.57% at the beginning of 2021. Inflation is expected to be 2% in 2021, jump to 4.00% in 2022, and run at 3% in 2023. A maturity risk premium is expected to be 0.37% per year to maturity. A liquidity premium on corporate bonds issued by small companies will continue to be 0.50%, regardless of their maturities. What should the interest rate on a 3-year Treasury security be at the beginning of 2021? Group of answer choices 5.85% 5.31% 5.54% 6.18% 5.68%
Please type the following questions in full detail. The image has the question
Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 0.80% = 1.95% R1 E(201) E(371) = $2.05% E(471) 2.35% L2= 0.07% L3= 0.11% L4= 0.13% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Years 1 2 3 4 Current (Long-term) Rates % % % %
3. The U.S. Government has a 20-year bond that matures 20 years from now and has a face value of $1,000. The bond has a coupon rate of 3.1% per year, paid semiannually. The yield on the bond is 8%. If coupons are reinvested at 3.6% per annum, then how much interest is earned on reinvested coupons over the life of the bond? Calculate the interest as a percentage of the total cash flows received by the bondholder. What is the amount of interest earned on reinvesting the coupons? $ (Round to the nearest cent.) What percentage of the total cash flows received by the bondholder is the interest earned on the reinvested coupons? % (Round to two decimal places.)
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Finance Consider a zero-coupon bond that will pay the face value of $1,000 in September 2023. In September 2021, we enter a long position in a forward contract on the zero-coupon bond. The forward will expire one year from now, and the forward price is $980. Suppose that a year later, in September 2022, the term structure turns out to be as follows: Maturity (years) Spot rate (% per annum) (continuous compounding) 1 5% 2 6% What is the payoff for the long position in the forward?
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