You are considering an investment in 20-year bonds issued by MooreCorporation. The bonds have no special covenants. The Wall Street Journalreports that 1-year T - bills are currently earning 0.50 percent. Your brokerhas determined the following information about economic activity andMoore Corporation bonds:Real risk-free rateDefault risk premiumLiquidity0.41% = 1.05 % = 0.90% = 0.75%risk premiumMaturity risk premium=a. What is the inflation premium?b. What is the fair interest rate on MooreCorporation 20-year bonds?

To determine the inflation premium and the fair interest rate on Moore Corporation's 20-year bonds,…

Answered: You are considering an investment in…

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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Squire Inc.'s 5-year bonds yield 12.50%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Squire's bonds is DRP = 1.20% 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. What is the liquidity premium (LP) on Squire's bonds?
anawer with explanation. Please answer fast i give you upvote.
(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation) The 8-year $1,000 par bonds of Vail Inc pay 14 percent interest. The market's required yield to maturity on a comparable-risk bond is 10 percent. The current market price for the bond is $1,110. a. Determine the yield to maturity. b. What is the value of the bonds to you given the yield to maturity on a comparable-risk bond? c. Should you purchase the bond at the current market price? COLLE a. What is your yield to maturity on the Vail bonds given the current market price of the bonds? % (Round to two decimal places.)
Assume you make the following investments: A $10,000 investment in a 10-year T-bond that yields 6.00%, and a $20,000 investment in a 10-year corporate bond with an BBB rating and a yield of 8.30%. Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is 0.50%, what is your estimate of the corporate bond's default risk premium? A.) 2.30%? B.) 3.06%? C.) 1.80%? D.) 2.52%?
In mid-2012, Ralston Purina had AA-rated, 10-year bonds outstanding with a yield to maturity of 1.53%. a. What is the highest expected return these bonds could have? b. At the time, similar maturity Treasuries had a yield of 0.53%. Could these bonds actually have an expected return equal to your answer in part (a)? c. If you believe Ralston Purina's bonds have 0.8% chance of default per year, and that expected loss rate in the event of default is 54%, what is your estimate of the expected return for these bonds? a. What is the highest expected return these bonds could have? The highest expected return these bonds could have is%. (Round to two decimal places.)
Determine the price of a $380,000 bond issue under each of the following independent assumptions: Note: Use tables, Excel, or a financial calculator. Round your intermediate calculations and final answer to the nearest whole dollar. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) 1. 2. 3. Face value 380,000 380,000 380,000 Maturity 10 years 10 years 20 years Interest Paid annually semiannually semiannually Stated Rate 11% 11% 10% Effective Rate 11% 12% 10% Price 379,998 358,205
Which of the following are short-term financial instruments? Select one: a. A banker's acceptance.b. A bond with five years maturity c.Share of Raysut cement d.None of these
(Related to Checkpoint 9.2 and Checkpoint 9.3) (Bond valuation) Fingen's 14-year, $1,000 par value bonds pay 13 percent interest annually. The market price of the bonds is $1,080 and the market's required yield to maturity on a comparable-risk bond is 10 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you, given your required rate of return. c. Should you purchase the bond? a. What is your yield to maturity on the Fingen bonds given the market price of the bonds? % (Round to two decimal places.) G
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%
Cost of debt with fees. Kenny Enterprises will issue a bond with a par value of $1,000, a maturity of twenty years, and a coupon rate of 11.2% with semiannual payments, and will use an investment bank that charges $30 per bond for its services. What is the cost of debt for Kenny Enterprises at the following market prices? a. $979.18 b. $1,009.76 c. $1,111.03 d. $1,147.97 a. What is the cost of debt for Kenny Enterprises at a market price of $979.18? ☐ % (Round to two decimal places.)
The current zero-coupon yield curve for risk-free bonds is as follows What is the price per $100 face value of a four-year, zero-coupon, risk-free bond? The price per $100 face value of the four-year, zero-coupon, risk-free bond is $_______(Round to the nearest cent.)

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