The Gergen Group's 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rate is rº =3.4%, the default risk premium for Gergen's bonds is DRP = 0.85% versus zero for T-bonds, the liquiditypremium on Gergen's bonds is LP = 1.25%, and the maturity risk premium for all bonds is found with theformula MRP = (t-1)× 0.1%, where t = number of years to maturity. What is the inflation premium (IP) on 5-year bonds?Select the correct answer.O a. 1.23%Ob. 0.81%O c. 1.09%O d. 0.95%e. 0.67% Reinegar Corporation is planning two new issues of 25-year bonds. Bond Par will be sold at its $1,000 par value,and it will have a 10% semiannual coupon. Bond OID will be an Original Issue Discount bond, and it will alsohave a 25-year maturity and a $1,000 par value, but its semiannual coupon will be only 3.25%. If both bonds areto provide investors with the same effective yield, how many of the OID bonds must Reinegar issue to raise$3,000,000? Disregard flotation costs, and round your final answer up to a whole number of bonds.Select the correct answer.O a. 7,816b. 7,812c. 7,808O d. 7,820e. 7,804

Yield depends on the risk involved in the bond and these risks may include inflation, default and…

The Gergen Group's 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rat 3.4%, the default risk premium for Gergen's bonds is DRP = 0.85% versus zero for T-bonds, the liqu premium on Gergen's bonds is LP = 1.25%, and the maturity risk premium for all bonds is found wit formula MRP (t-1) x 0.1%, where t = number of years to maturity. What is the inflation premium year bonds? Select the correct answer. O a. 1.23% O b. 0.81% O c. 1.09% O d. 0.95% e. 0.67% A

The Gergen Group's 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rat 3.4%, the default risk premium for Gergen's bonds is DRP = 0.85% versus zero for T-bonds, the liqu premium on Gergen's bonds is LP = 1.25%, and the maturity risk premium for all bonds is found wit formula MRP (t-1) x 0.1%, where t = number of years to maturity. What is the inflation premium year bonds? Select the correct answer. O a. 1.23% O b. 0.81% O c. 1.09% O d. 0.95% e. 0.67% A

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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Do-Well bonds have a face value of $1,000 and are currently quoted at 867.25. The bonds have a 7% coupon rate. What is the current yield on these bonds? 7.42% 7.67% 8.07% 9.03% 8.47%
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%
A Treasury bond due in 1 year has a yield of 3.5%, while a Treasury bond due in 5 years has a yield of 7.5%. A bond due in 5 years issued by High Country Marketing Corp. has a yield of 13%, while a bond due in 1 year issued by High Country Marketing Corp. has a yield of 5%. The default risk premium on the 5-year bonds issued by High Country Marketing Corp. is _________. Note: Express your answers in strictly numerical terms. For example, if the answer is 5%, write 0.05"
5-year Treasury bonds yield 3.6%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year T-bonds is 0.5%. There is no liquidity premium on these bonds. What is the real risk-free rate, r*?
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Drongo Corporation's 3-year bonds currently yield 6.3 percent and have an inflation premium of 3.3%. The real risk-free rate of interest, r*, is 1.5 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 1.3 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 3 percent for years 4, 5, and 6, what is the yield on a 6-year bond for Drongo Corporation? ○ 6.05% 6.45% 6.25% 5.85% 5.65%
Drongo Corporation's 4-year bonds currently yield 7.7 percent and have an inflation premium of 3.7%. The real risk-free rate of interest, r*, is 2.6 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 1.1 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 4 percent for years 5 and 6, what is the yield on a 6-year bond for Drongo Corporation? 8.00% O 8.50% 9.00% 9.50% 10.00%
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%
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%
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A bond has a par value of $1.000 a cument yield of 693 percent, and semiannual coupon payments. The bond is quoted at 101.56 What is the amount of each coupon payment? O O O O O $360 42038 SJAAS

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