A company’s 5-year bonds are yielding 7% per year. Treasurybonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimatedto be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is0.7%, what is the default risk premium on the corporate bonds?
Q: The real risk-free rate of interest, r*, is 3%. Inflation is expected to be 4% this year, 5 percent…
A: Yield on 10 years bond will be the risk free rate,inflation and maturity risk premium.
Q: A bond has an annual 8 percent coupon rate, a maturity of 10 years, a face value of $1000 and makes…
A: Please note that coupons are being paid semi annually. Hence, the period here is half year. All the…
Q: ABC Motors' bonds have 19 years remaining to maturity. Interest is paid semi-annually, they have a…
A: Data given:: Par Value = $1,000 Coupon interest rate = 5% (paid semi-annually) = 5%/2 = 2.5% = 0.025…
Q: A company's 5-year bonds are yielding 8.95% per year. Treasury bonds with the same maturity are…
A: Default risk premium on corporate bond can be calculated by using this equation Yield = real…
Q: a coproration bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a…
A: Corporate bond refers to the bond issued by a corporation in order to elevate financing for many…
Q: A company's 5-year bonds are yielding 7.4% per year. Treasury bonds with the same maturity are…
A: Default Risk Premium is the premium on return that an investor anticipates in addition to the return…
Q: A firm’s bonds have a maturity of 8 years with a $1,000 face value,have an 11% semiannual coupon,…
A: Computation:
Q: You want to find the value of a corporate bond with an annual coupon rate of 6%, making semi-annual…
A: value of bond is the present value of cash inflows discounted at yield
Q: Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date.…
A: The first question is incomplete. In order to answer the question, we need the options available for…
Q: Gilligan Co.'s bonds currently sell for $1,230. They have a 6.75% annual coupon rate and a 15-year…
A: Working note:
Q: Suppose a 10-year, $1,000 bond with an 8.4% coupon rate and semi-annual coupons is trading for a…
A: The bond's yield to maturity is the interest rate at which, when the future benefits to be received…
Q: A company's 5-year bonds are yielding 8.25% per year. Treasury bonds with the same maturity are…
A: The risk-free rate of return is the theoretical rate of return of an investment with zero risks. The…
Q: Assuming a market rate of 7.6% over all maturities, the current yield of a bond with a coupon rate…
A: Bonds: Bonds are the liabilities of the company which is issued to raise the funds required to…
Q: Assume the bonds par is $1000. A 13 yr bond is selling at $1,040 and its coupn is paid semi…
A: Face value = 1000 YTM years = 13 YTM rate = 9% Present value = 1040
Q: A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are…
A: The difference between the interest rate of the corporate bond and the risk-free bond is term as the…
Q: A companies corporate bond has 30 years left to maturity, a par value of $1,000, coupon rate of 7.5%…
A: Given:
Q: Gilligan Co.'s bonds currently sell for $1,150. They have a 6.60% annual coupon rate and a 14-year…
A: Using rate function in Excel
Q: Showbiz, Inc., has issued eight-year bonds with a coupon of 6.76 percent and semiannual coupon…
A: Bond price is calculated by present value of future cash flows. C is semi-annual coupon payment r…
Q: Suppose a company issues a bond with a par value of €1,000, 5 years to maturity, and a coupon rate…
A: Par Value = €1,000 Years to Maturity = 5 years Coupon Rate = 8.5% Yield to maturity(YTM) = 7.5%…
Q: What is the semi annual coupon bonds nominal yield to maturity (ytm),if the years to maturity is 15…
A: in this problem we have to consider discount rate at which present value of par value and present…
Q: Suppose that General Motors Acceptance Corporation issued a bond with 10 years until maturity, a…
A: Coupon amount= 1000*7% =70 YTM=6% Face Value= 1000 Maturity Year Remaining =10-1= 9 years
Q: Bonds of TLM Corporation with a par value of R1000 sell for R960, mature in five years, and have a…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: A corporate bond is currently quoted at a price of $1197.93 and carries a 10 percent annual coupon…
A: Bonds are debt instruments issued by companies. Bond pays periodic fixed coupon payments.
Q: A company's 5-year bonds are yielding 8.35% per year. Treasury bonds with the same maturity are…
A: Formulas: Yield = real risk-free rate + average inflation premium + maturity risk premium +…
Q: A 10-year corporate bond has an annual coupon payment of 10%. The bond is currently selling at par…
A: Yield to maturity of bond refers to return that is obtained for holding the bond till maturity.
Q: The real risk-free rate of interest, r*, is 3%. Inflation is expected to be 4% this year, 5 percent…
A: Yield on 10 years bond will be the risk free rate,inflation and maturity risk premium.
Q: A company's 5-year bonds are yielding 9% per year. Treasury bonds with the same maturity are…
A: The nominal yield on a bond: The nominal yield on a bond is the quoted yield on a bond. It can be…
Q: If a $1,000 bond with a 4 percent coupon (paid annually) and a maturity date of ten years is selling…
A: A financial instrument that doesn’t affect the ownership of the common shareholders or management of…
Q: Calculate the yield to maturity of both bonds. All else being equal, explain which bond the issuing…
A:
Q: A company's 5-year bonds are yielding 8% per year. Treasury bonds with the same maturity are…
A: Yield on Bond = 8% Real Risk Free Rate = 2.45% Average Inflation Premium = 2.05% Time Period of Bond…
Q: A company’s 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are…
A: Calculate the default risk premium as follows:
Q: A company's 5-year bonds are yielding 9.05% per year. Treasury bonds with the same maturity are…
A: Corporate bonds are a kind of bond that are issued by a company in order to raise funds from…
Q: A firm has issued bonds with a remaining maturity of 1 year, face value of $100 and an annual coupon…
A: Bond default refers to the situation when issuer of a bond is unable to repay the bond amount which…
Q: The real risk-free rate of interest, r*, is 3%. Inflation is expected to be 4% this year, 5 percent…
A: Bonds: It is an agreement by a borrower to pay a a money lender their principal and usually…
Q: The 10-year bonds of Gator Corporation are yielding 8 percent per year. Treasury bonds with the same…
A:
Q: A bond has an annual 8 percent coupon rate, a maturity of 10 years, a face value of $1,000, and…
A: The formula to calculate price of bond is given below,
Q: of 5%. Face value of the corporate bond Php. 1,500. can you compute the following? a. Annual…
A: The given problem can be solved using PV function in excel. PV function will compute present value…
Q: A corporate bond has 30 years left to maturity, a par value of $1,000, coupon rate of 7.5% with…
A: According to the general finance rule, the intrinsic value of financial security represents a sum of…
Q: Madsen Motors’s bonds have 23 years remaining to maturity. Interestis paid annually, they have a…
A: using financial calculator N (no. of years) =23 I/Y (rate)= 11% PMT (coupon payment) = 1000*9% =-90…
Q: Hartwell Corporation’s bonds have a 20-year maturity, an 8% semiannual coupon,and a face value of…
A: The current price of the bond is the present value of its expected future cash flow which is…
Q: Assume that a corporate bond has a par value of P1,000 and 8 years until it matures. This bond also…
A:
Q: Two bonds have a coupon rate of 4.25 percent, semi-annual payments, face values of $1,000, and…
A: Using excel PV function
Q: Heath Food Corporation’s bonds have 7 years remaining to maturity. Thebonds have a face value of…
A: Computation:
Q: A $1,000 per value bond with a 5.8% coupon and semi-annual interest payments has 25 years to…
A: Given data, Face Value = $1000 Coupon rate = 5.8% Maturity = 25 years Current price = $1122.75
A company’s 5-year bonds are yielding 7% per year. Treasury
bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is
2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimated
to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is
0.7%, what is the default risk premium on the corporate bonds?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 3.9% per year, and the real risk-free rate (r*) is 2.15%. The average inflation premium is 1.35%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %A company's 5-year bonds are yielding 8% per year. Treasury bonds with the same maturity are yielding 4.9% per year, and the real risk-free rate (r*) is 2.45%. The average inflation premium is 2.05%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.8%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %A company's 5-year bonds are yielding 8% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk - free rate (r*) is 2.65 % . The average inflation premium is 2.15%, and the maturity risk premium is estimated to be 0.1 \times (t-1) %, where t = number of years to maturity. If the liquidity premium is 0.7 %, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
- A company's 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk free rate (r*) is 2.3%. The average inflation premuim is 2.5% and the maturity risk premium is estimated to be 0.1X(t-1) % where t= the number of maturity. If the iquidity premium is 1% what is the default risk premium on the corporate bonds.? Please show formula and calculation. Do it in manual computation not in spreadsheet.A company’s 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimated to be 0.1 3 (t 2 1)%, where t 5 number of years to maturity. If the liquidity premium is 0.7%, what is the default risk premium on the corporate bonds?Suppose the real risk-free rate of interest is r=4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next two years and 3.90% per year for the next three years. The maturity risk premium is 0.1 x (t-1) %, where t is number of years to maturity, a liquidity premium is 0.45%, and the default risk premium for a corporate bond is 1.40%, The average inflation during the first 4 years is What is the yield on a 4-year Treasury bond? O 6.75% O 8.90% O 4.30% O 7.05% What is the yield on a 4-year BBB-rated bond? O 7.50% O 7.05 % O 8.45% 8.90% If the yield on a 5-year Treasury bond is 7.38% and the yield on a 6-year Treasury bond is 7.83%, the expected inflation in 6 years is (Hint: Do not round intermediate calculations.)
- The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next two years and 3% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Global Satellite Corp.’s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Global Satellite Corp. issues 15-year, AA-rated bonds. What is the yield on one of these bonds?The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 3% per year for each of the next two years and 2% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Moq Computer Corp.’s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Moq Computer Corp. issues 15-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 7.68% 6.28% 5.55% 7.13% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? The yield on a AAA-rated bond will be lower than…The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next four years and 3% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 1)%, where t is the security's maturity. The liquidity premium (LP) on all Gauge Imports Inc.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury AAA 0.60% AA. 0.80% 1.05% A. ВB 1.45% Gauge Imports Inc. issues 12-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 5.25% 8.58% 8.03% 7.48% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? A AAA-rated bond has less default risk than a BB-rated bond. The yield on a AAA-rated bond will be higher than the…
- Suppose you are considering two possible investment opportunities: a 12-yearTreasury bond and a 7-year, A-rated corporate bond. The current real risk-free rateis 4%, and inflation is expected to be 2% for the next 2 years, 3% for the following4 years, and 4% thereafter. The maturity risk premium is estimated by this formula:MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimatedto be 0.3%. You may determine the default risk premium (DRP), given thecompany’s bond rating, from the table below. Remember to subtract the bond’s LPfrom the corporate spread given in the table to arrive at the bond’s DRP. Whatyield would you predict for each of these two investments?RateCorporate Bond YieldThe real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year for each of the next two years and 5% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t-1) %, where t is the security's maturity. The liquidity premium (LP) on all National Transmissions Corp.'s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating U.S. Treasury AAA AA A BBB O 5.25% O9.49% National Transmissions Corp. issues 7-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 10.54% Default Risk Premium 9.94% 0.60% 0.80% 1.05% 1.45% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? O The yield on U.S. Treasury securities always remains static. O In theory, the yield on a bond…The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next four years and 3% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Rink Machine Co.’s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Rink Machine Co. issues fourteen-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 7.94% 9.24% 8.19% 5.95% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? An AAA-rated bond has less default risk than a…