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Three years ago, you purchased an year bond issued by Thrumbauer Inc. for At that time the bond had a BBB credit rating. Year Expected Payments to Bond Owner The yield on an 8 year Treasury note at that time was (1) What interest rate (%/year) did this bond yield when you purchased it? $2,335.00 $2,335.00 $2,335.00 2.65% (1) What is the risk premium on the 8 year Thrumbauer bonds? $43,255 $2,335.00 Year Expected Payments to Bond Owner $2,335.00 $2,335.00 43,255 $2,335.00 8 $2,335.00 $47,750.00 4 $2,335.00 $2,335.00 $2,335.00 $2,335.00 $2,335.00 $2,335.00 $47,750.00

Three years ago, you purchased an year bond issued by Thrumbauer Inc. for At that time the bond had a BBB credit rating. Year Expected Payments to Bond Owner The yield on an 8 year Treasury note at that time was (1) What interest rate (%/year) did this bond yield when you purchased it? $2,335.00 $2,335.00 $2,335.00 2.65% (1) What is the risk premium on the 8 year Thrumbauer bonds? $43,255 $2,335.00 Year Expected Payments to Bond Owner $2,335.00 $2,335.00 43,255 $2,335.00 8 $2,335.00 $47,750.00 4 $2,335.00 $2,335.00 $2,335.00 $2,335.00 $2,335.00 $2,335.00 $47,750.00

Essentials Of Investments
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
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**Question 1: Parts A, B, and C** **Part A** Three years ago, you purchased an 8-year bond issued by Thrumbauer Inc. for $43,255. At that time, the bond had a BBB credit rating. The yield on an 8-year Treasury note at that time was 2.65%. **Table of Expected Payments:** - **Years 1 to 8:** The expected payment to the bond owner is $2,335.00 for each of the first seven years. - **Year 8:** The expected payment is $47,750.00. **Questions:** (i) What interest rate (%/year) did this bond yield when you purchased it? (ii) What is the risk premium on the 8-year Thrumbauer bonds?
Transcribed Image Text:**Question 1: Parts A, B, and C** **Part A** Three years ago, you purchased an 8-year bond issued by Thrumbauer Inc. for $43,255. At that time, the bond had a BBB credit rating. The yield on an 8-year Treasury note at that time was 2.65%. **Table of Expected Payments:** - **Years 1 to 8:** The expected payment to the bond owner is $2,335.00 for each of the first seven years. - **Year 8:** The expected payment is $47,750.00. **Questions:** (i) What interest rate (%/year) did this bond yield when you purchased it? (ii) What is the risk premium on the 8-year Thrumbauer bonds?
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Part B Today, three years later, yields on US Treasuries are as shown below. Treasury Yield (%/year) And Thrumbauer's improved financial performance has resulted in its credit rating improving to A. (i) Should its risk premium today be: Choose one and expalin your answer. (ii) Using the risk premium selected above, what would be the interest (yield) on Thrombauer's bond today? (iii) What would be the price of the bond today? (iv) What would be your return (%/year) if you sold the bond at this price? 1 4.10% 2.85% Years to Maturity 2 4.30% 3.25% 3 4.39% 3.65% 5 4.50% 8 4.65%
Transcribed Image Text:Part B Today, three years later, yields on US Treasuries are as shown below. Treasury Yield (%/year) And Thrumbauer's improved financial performance has resulted in its credit rating improving to A. (i) Should its risk premium today be: Choose one and expalin your answer. (ii) Using the risk premium selected above, what would be the interest (yield) on Thrombauer's bond today? (iii) What would be the price of the bond today? (iv) What would be your return (%/year) if you sold the bond at this price? 1 4.10% 2.85% Years to Maturity 2 4.30% 3.25% 3 4.39% 3.65% 5 4.50% 8 4.65%
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