NikkiG's Corporation's 10-year bonds are currently yielding a return of 6.25 percent. The expected inflation premium is 1.20 percentannually and the real risk-free rate is expected to be 2.50 percent annually over the next ten years. The liquidity risk premium onNikkiG's bonds is 0.45 percent. The maturity risk premium is 0.30 percent on 2-year securities and increases by 0.07 percent for eachadditional year to maturity. Calculate the default risk premium on NikkiG's 10-year bonds.Note: Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34).Default risk premium%

Step 1:we have to calculate the default risk premium of the bond. The formula for calculating the…

Answered: NikkiG's Corporation's 10-year bonds…

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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Dynamic Systems has an outstanding bond that has a $1,000 par value and a 7 percent coupon rate. Interest is paid semiannually. The bond has 11 years remaining until it matures. Today the going interest rate is 10 percent, and it is expected to remain at this level for many years in the future. Compute the (a) current yield and (b) capital gains yield that the bond will generate this year.
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?
AEP has a 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 11 years from now?
Notting Hill Berhad issued 25-year bonds three years ago. The bonds are currently selling for 97 percent of par. The face value of the bond is RM1,000 per unit. However, upon maturity, the bondholders can redeem the bonds at a premium of 10% to the par value. The yield-to-maturity of the bond is 9 percent per annum. Assuming the coupon payment is paid quarterly, calculate the annual coupon rate of the bonds.
ABC Inc. is planning to issue new annual coupon bonds with a maturity of ten years. The company outstanding (annual coupon paying) bonds have a 7.5% coupon rate and mature in ten years. They are currently selling for $1,013.03. What would the coupon rate on the new bonds have to be such that they will sell at par upon issuance?
NikkiG's Corporation's 10-year bonds are currently yielding a return of 6.70 percent. The expected inflation premium is 1.10 percent annually and the real risk-free rate is expected to be 3.40 percent annually over the next ten years. The liquidity risk premium on NikkiG's bonds is 0.20 percent. The maturity risk premium is 0.15 percent on 4-year securities and increases by 0.05 percent for each additional year to maturity. Calculate the default risk premium on NikkiG's 10-year bonds. Note: Round your percentage answer to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Default risk premium
Fingen's 16-year,$1,000 par value bonds pay14 percent interest annually. The market price of the bonds is $950 and the market's required yield to maturity on a comparable-risk bond is16 percent. What should be the value of the Fingen bonds given your required rate of return on a comparable bond? (Round to the nearest cent.)
Technical Sales, Inc. has 6.6 percent coupon bonds on the market with 9 years left to maturity. The bonds make semiannual payments and currently sell for 92.5 percent of par. What is the effective annual yield?
Russell Container Company has a $1,000 par value bond outstanding with 30 years to maturity. The bond carries an annual interest payment of $105 and is currently selling for $880 per bond Russell is in a 40 percent tax bracket. The firm wishes to know what the aftertax cost of a new bond issue is likely to be. The yield to maturity on the new issue will be the same as the yield to maturity on the old issue because the risk and maturity date will be similar. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. Compute the yield to maturity on the old issue and use this as the yield for the new issue Yield on new issue b. Make the appropriate tax adjustment to determine the aftertax cost of debt. Cost of debt.
Baghiben
A 10-year corporate bond yields 16.5%. The real risk-free rate is 2% which is projected to be constant indefinitely. The expected inflation for year 1 is 1%, for year 2 is 2%, and it will increase by 1% each year after. The default risk premium is twice the liquidity premium and they will remain the same regardless of the maturity year of the bond. Maturity Risk premium for long-term securities is computed as estimated to be 0.5%(t - 1), where t is the maturity of the bond.What is the difference between the yield or interest rate of a an 8-year Government issued bond and 8-year Corporate bond? a. 4.5% b. 1.5% c. 3% d. 5.5% The yield for an 11-year government bond is a. 13% b. 17.5% c. 6% d. 16%

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