•1.3.1415Kay Corporation's 5-year bonds yield 5.90% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* - 2.5%, the inflationpremium for 5-year bonds is IP = 1.50%, the default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and thematurity risk premium for all bonds is found with the formula MRP-(t-1) x 0.1%, where t = number of years to maturity. What isthe liquidity premium (LP) on Kay's bonds?OOa0.19%OOOb.0.25%O €0.20%8.0.17%e. 0.25%ODr Fran Day-Question 3 of 15A-Z1

A rational investors always seeks for additional return because additional aspect of risk in…

Answered: Kay Corporation's 5-year bonds yield…

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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Drongo Corporation's 3-year bonds currently yield 4.7 percent and have an inflation premium of 2%. The real risk-free rate of interest, r', is 1.3 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t - 1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 1.2 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 5.4 percent for years 4, 5, and 6, what is the yield on a 6-year bond for Drongo Corporation? 6.1% 6.7% O 7.0% 5.8% O 6.4%
National Pharmaceutical SAOC issued two bonds. Bond 1 has an annual coupon rate of 7 per cent and Bond 2 has an annual coupon of 11 per cent. Bond 1 matures in three years and Bond 2 matures in five years. Both bonds have a par value of OMR 100. Assume that the yield to maturity on bonds of this risk class is 9 per cent. Required:a. How much would you pay for the bond 1 and Bond 2? b. What is the flat yield on bond 1 if it is selling at OMR 103? c. What is the flat yield on bond 2 if it is selling at OMR 97? d. What is meant by flat yield? Why do we calculate flat yield? Based on your answers in b and c, which bond is offering better flat yield and why?
A brand has bonds on the market with 19 years to maturity, a YTM of 11.0 percent, a par value of $1,000, and a current price of $1,206.50. The bonds make semiannual payments. What must the coupon rate be on these bonds? A. 13.71% B. 13.61% C. 27.27% D. 11.28% E. 22.60%
the following table represents the yield to maturity for 12 year t bonds and corporate bonds with different ratings what most likely accounts for differences in yields? T-Bond: 2.42% AAA Corporate Bond: 3.42% A Corporate Bond: 4.24% BBB Corporate Bond: 4.78% Differences in expected inflation. Tax effects of corporate bonds. Differences in the real and nominal risk-free rate. ODefault risk and liquidity risk. Maturity risk and liquidity risk.
Dakota Corporation 15-year bonds have an equilibrium rate of return of 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.50 percent. The security’s liquidity risk premium is 0.25 percent and maturity risk premium is 0.85 percent. The security has no special covenants. Calculate the bond’s default risk premium. (Round your answer to 2 decimal places.)
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
Long-term treasury bonds have 6% yield, while long-term corporate bonds have 10% yield. Default risk premium for long-term corporate bonds is 3%. What is the long- term corporate bonds liquidity premium? 4% 2% 3% 1%
Calculate the purchase price of the following bonds. Indicate whether the bonds are priced at a discount, at par or at a premium. Give your answers in dollars and cents to the nearest cent. Face Value Coupon Rate Years to Maturity Market Rate a) $100 r = 6.75% 5 j2 = 6.75% b) $1,000 r = 8% 11 j2 = 6.25% c) $10,000 r = 7% 20 j2 = 8.75% Quoted coupon rates and market rates are nominal annual rates compounded semi-annually. a)Price = $ This bond is priced at:a discountpara premium b)Price = $ This bond is priced at:a discountpara premium c)Price = $ This bond is priced at:a discountpara premium
Corporation's 10-year bonds have an equilibrium rate of return is 9.00 percent. For all securities, the inflation risk premium is 1.68 percent and the real interest rate is 3.18 percent. The security's liquidity risk premium is .33 percent and maturity risk premium is .88 percent. The security has no special covenants. What is the bond's default risk premium? A - 2.93% B - 11.71% C - 1.80% D - 6.07%
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%
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
Subject:- finance

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