Coproate bond that has same default risk-liquidity premiums

Assignment Help Financial Management
Reference no: EM131053044

The real risk -free rate, r*, is expected to reamin constant at 3%. Inflation is expected to be 2% a year for the next 3 years, and then 4% a year thereafter. The maturity risk premium 0.1% times (t minus1), where t equals the maturity of the bond. (The maturity risk premium on a 5 year bond is 0.4%). A 5 year coporate bond has a yield of 8.4%. What is the yield on a 7 year coproate bond that has the same default risk and liquidity premiums as the 5 year coproate bond. Note: consider theat the 5 year has inflation and maturity risk included, so you must remove those and replace those for the 7 year. Please show all work so I understand it.

Reference no: EM131053044

Questions Cloud

Complete a market segmentation and target market selection : Who are our customers and how will we appeal to them? Homogeneity of needs and wants appear within the segment? Heterogeneity of needs and wants exists between the segment?
Some of the effective writing skills : What are some of the effective writing skills one needs to make his/her writing more communicable?
Corporate coupon bond is callable : A 6-percent corporate coupon bond is callable in 10 years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder, if the issuer calls the bond?
What is the number of degrees of freedom : For the hypothesis, H0: µ1 ≤ µ2, a random sample of 10 observations is selected from the first normal population and 8 from the second normal population. What is the number of degrees of freedom
Coproate bond that has same default risk-liquidity premiums : The real risk -free rate, r*, is expected to reamin constant at 3%. Inflation is expected to be 2% a year for the next 3 years, and then 4% a year thereafter. The maturity risk premium 0.1% times (t minus1), where t equals the maturity of the bond. W..
Write two password policies of your own : Then, write two password policies of your own. One should be for your work/school accounts, the other for your personal home accounts. Some things to consider are length of password, use of special characters, expiration, reuse, etc.
Self-directed teams to manage work in organizations : Has the growth of self-directed teams to manage work in organizations changed the need for strategic, tactical, and operational decision making in business?
Grow an investment to a specific amount of money : Which of the following statements about calculating the number of years needed to grow an investment to a specific amount of money is true?
Explore the value of various types of methodologies : Explore the value of various types of methodologies. For this assignment, identify your topic of interest and use and cite existing literature to support the need for further research in the area.

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the retailers effective cost of trade credit

A large retailer obtains merchandise under the credit terms of 1/20, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's e..

  Dividend is expected to grow at a constant rate

Thomas Brothers is expected to pay a $2.6 per share dividend at the end of the year (that is, D1 = $2.6). The dividend is expected to grow at a constant rate of 6% a year. The required rate of return on the stock, rs, is 19%. What is the stock's curr..

  Fiscal years-use the financial statements

DuPont analysis for Google and Yahoo companies for each of the last five fiscal years; use the Financial Statements filed with the SEC. This submission must be an Excel spreadsheet containing the calculated values.

  Considered to be the most risky

Which of the following is considered to be the most risky?

  What annual savings can aqua system expect

Aqua System Inc. expects to have $23,911,800 in credit sales during the coming year. Currently, all checks are sent to the home office. A proposed lockbox system can eliminate 2 days of float, releasing funds which, when invested, will earn 11.01 per..

  Begin by constructing a time line-project has initial cost

A project has an initial cost of $70,925, expected net cash inflows of $11,000 per year for 11 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations.

  What is the current equivalent lump sum of settlement

After an injury, you win a lawsuit judgment of $3,524 per month starting next month for a total of 42 months. If the interest rate is 9.1% APR compounded monthly, what is the current equivalent lump sum of your settlement?

  Estimate present value of the tax benefits from depreciation

Your company is considering a new project that will require $794,000 of new equipment at the start of the project. The equipment will have a depreciable life of 8 years and will be depreciated to a book value of $146,000 using straight-line depreciat..

  What is the break-even cost per kilowatt-hour

Compact fluorescent lamps (CFLs) have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.41 and lasts for 1,000 hours. You require a return of 9 percent and use a light fixture..

  What is the market value of this bond if yield to maturity

Junkman's Warehouse and Storage Company has an unusual bond outstanding with three years remaining until maturity. The bond is unusual because the annual coupon payments remaining are $100, $200, and $300 and the face value of the bond is $1,200. Wha..

  An appropriate position for a hedge

Your bank owns adjustable rate mortgages (ARMs) that are priced at three month LIBOR plus 1 percent. There is an annual cap on the allowable rate increase equal to a maximum of 1 percent a year. Thus, if LIBOR rises by 3 percent, the bank can raise t..

  Savings bond interest income on her income tax return

John purchased a U.S. savings bond in the name of his daughter, Brittany, when she was four years old. Last year, Brittany was 18 and in college. She cashed in the bond to pay for her room and board. John claims Brittany on his income tax return. Bri..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd