EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 5, Problem 17PROB
Summary Introduction
Maturity risk premium:
Premium required for accepting the risk on the specific security.
Calculate the maturity risk premium as follows:
Given nine months Treasury bill yield is 2.3%. Yield on three years bond is 2.9% and yield on years bonds yield is 4.3%. Bonds does not have liquidity premium.
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( explain deeply with proper answer).
(Calculating the default-risk premium) At present, 10-year Treasury bonds are yielding 4.1% while a 10-year
corporate bond is yielding 6.4%. If the liquidity-risk premium on the corporate bond is 0.5%, what is the
corporate bond's default-risk premium? Note that a Treasuty security should have no default-risk premium
and liquidity-risk premium
A nominal risk-free rate is currently 3.5%. A broker at INV Securities, has given you the following
estimates of current interest rate premiums: Inflation Premium: 2%, Liquidity Risk Premium 1.5%.
Maturity Risk Premium 3%, and Default Risk Premium 1.5%. Based on these data, what are the
rates of short-term corporate bonds?
O 7.5%
O 6.5%
8%
8.5%
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