Pearson Etext For Foundations Of Finance -- Combo Access Card (10th Edition)
10th Edition
ISBN: 9780135639344
Author: Arthur J. Keown, John D Martin, J. William Petty
Publisher: PEARSON
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Chapter 2, Problem 1SP
Summary Introduction
To determine: The default risk premium on company bonds.
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If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 9.2%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
If 10-year Treasury bonds have a yield of 4.3%, 10-year corporate bonds yield 6.7%, the maturity risk premium on all 10-year bonds is same, and corporate bonds have a 0.3% liquidity premium vs. a zero liquidity premium for T-bonds,what is the default risk premium on the corporate bond?
Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also, corporate bonds have a 0.25%
liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-
year bonds is 1.15%. What is the default risk premium on corporate bonds?
A) 3.08%
B) 3.35%
2.95%
D) 4.12%
E) 3.12%
Chapter 2 Solutions
Pearson Etext For Foundations Of Finance -- Combo Access Card (10th Edition)
Ch. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Prob. 10RQ
Ch. 2 - Prob. 11RQCh. 2 - Prob. 12RQCh. 2 - Prob. 13RQCh. 2 - Prob. 14RQCh. 2 - Prob. 15RQCh. 2 - Prob. 1SPCh. 2 - Prob. 2SPCh. 2 - Prob. 3SPCh. 2 - Prob. 4SPCh. 2 - Prob. 5SPCh. 2 - Prob. 6SPCh. 2 - Prob. 7SPCh. 2 - Prob. 8SPCh. 2 - Prob. 9SPCh. 2 - Prob. 10SPCh. 2 - Prob. 11SPCh. 2 - (Interest rate determination) Youre looking at...Ch. 2 - Prob. 13SPCh. 2 - (Yield curve) If yields on Treasury securities...Ch. 2 - (Unbiased expectations theory) Currently you have...Ch. 2 - Prob. 2MCCh. 2 - Prob. 3MCCh. 2 - Prob. 4MCCh. 2 - Prob. 5MC
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- Suppose 10-year T-bonds have a yield of 5.00% and 10-year corporate bonds yield 8.05%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds? a. 3.30% b. 7.80% c. 3.05% d. 5.25% e. 2.80%arrow_forwardSuppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.50%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds? 3.33 % 2.95% 2.92% 2.68 % 2.86 %arrow_forwardSuppose 10-year bonds issued by the premium versus a zero liquidity premium for the &i government bonds. And the maturity risk premium on both 10-year bonds is 1.15%. What is the default risk premium on Zai bonds? government have a yield of 5.78% and Zan 10-year bonds have a yield of 8.78%. Also, Zgi bonds have a 0.85% liquidity Default risk premium on Zai bonds is % (use 2 decimals)arrow_forward
- What is the default risk premium on Aaa corporate bond, if the interest rate on that bond is 3.25 percent and the interest rate on a Treasury security is 1.16 percent?arrow_forwardAn investor gathers the following data on three newly-issued bonds: 1-year government bond, 3.0% yield 1-year ABC corporate bond, 4.2% yield 10-year government bond, 3.8% yield If investors require a 0.5% liquidity premium for corporate bonds, what are the components of the required return on a 10-year ABC bond?arrow_forwardThe following information is about the spot rates on Treasury securities and BBB corporate bond: Spot 1 Year Spot 2 Year Spot 3 Year Treasury 3% 4.75% 5.5% BBB Corporate Debt 7.5% 9.15% 10.5% Question: Using the implied forward rates, estimate the annual marginal default probability for the one-year BBB corporate debt in year 3?arrow_forward
- Assume that the real, risk-free rate of interest is expected to be constant over time at 3 percent, and that the annual yield on a 6-year corporate bond is 8.00 percent, while the annual yield on a 10-year corporate bond is 7.75 percent: you may assume that the default risk and liquidity premium are the same for both bonds. Also assume that the maturity risk premium for all securities can be estimated as MRP, (0.1%) *(t-1), where t is the number of periods until maturity. Finally assume that inflation is expected to be constant at 3 percent for Years 1-6, and then constant at some rate for Years 7-10 (4 years). Given this information, determine what the market must anticipate the average annual rate of inflation will be for Years 7-10. 2.583% O 1979% 2.281% 1.375 % O 1.677 % 4arrow_forward( explain deeply with proper answer).arrow_forwardIf 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 placesarrow_forward
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