Remember from class that YTM - Riskfree = sum of risk premiums. Assume the risk-free rate is 1.789 the credit risk premium is 1.036 and the maturity premium is 1.247 what is the yield of the bond? (also this is an estimate)
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- Which of the following measures the interest rate risk of a bond in dollars and cents? O Price Value of a Basis Point O Convexity O Modified Duration Duration.The interest rate on debt, r, is equal to the real risk-free rate plus an inflation premium plus a default risk premium plus a liquidity premium plus a maturity risk premium. The interest rate on debt, r, is also equal to the -Select-purerealnominalCorrect 1 of Item 1 risk-free rate plus a default risk premium plus a liquidity premium plus a maturity risk premium.The real risk-free rate of interest may be thought of as the interest rate on -Select-long-termshort-termintermediate-termCorrect 2 of Item 1 U.S. Treasury securities in an inflation-free world. A Treasury Inflation Protected Security (TIPS) is free of most risks, and its value increases with inflation. Short-term TIPS are free of default, maturity, and liquidity risks and of risk due to changes in the general level of interest rates. However, they are not free of changes in the real rate. Our definition of the risk-free rate assumes that, despite the recent downgrade, Treasury securities have no meaningful default risk.The…Write a general expression for the yield on anydebt security (rd) and define these terms: real riskfree rate of interest (r*), inflation premium (IP),default risk premium (DRP), liquidity premium (LP),and maturity risk premium (MRP).
- The formula for the yield to maturity, i, on a discount bond is (Points : 1)i = (Face value – Discount price)/Discount price.i = (Discount price – Face value)/Discount price.i = (Face value – Discount price)/Face value.i = (Discount price – Face value)/Face valueD3) Show that a variable rate bond is priced at par if the coupons are paid with reference to the rate curve with which the flows are discounted.what is the price of the Pybus bonds if they receive an A rating will be $ ?
- Define each of the following terms:g. Current yield (on a bond); yield to maturity (YTM); yield to call (YTC)Does the interest rate on a T-bond include a default risk premium? Explain.A bond’s expected return is sometimes estimated by its yield to maturity (YTM) and sometimes by its yield to call (YTC). The YTC is a better estimate when the bond sells at... a. a discount. b. a premium. c. par value.
- Can the price of bond B be determined using the PV function or any other function in excel? What is the EAR (effective annual rate) of these two bonds?For a discount bond, the current yield isthe yield to maturity, and the coupon rate is the yield to maturity. Select one: O a. less than; less than O b. equal to; equal to O c less than; greater than O d. greater than; greater than O e. greater than; less than1. Find the current bond price