Maturity risk premium is estimated-default-liquidity premium

Assignment Help Financial Management

Reference no: EM131047469

Drongo Corporation's 4-year bonds yield 5.07%. The real risk-free rate is 2.71%. The maturity risk premium is estimated to be 0.05%(t-1), where t is equal to the time to maturity. The default and liquidity premiums for Drongo's bonds total 1.24% and are believed to be the same for all bonds issued by the company. If the average inflation rate is expected to be 6.94% for years subsequent to 4 through year 8, what is the yield on a 8-year bond for Drongo?

Reference no: EM131047469

Questions Cloud

Stakeholders in not for profit corporations : Which of the following individuals (or groups) are NOT stakeholders in not-for- profit corporations? Which of the following statements about not-for-profit corporations is most correct? Which of the following equations best describes the accounting i..

What is the present value of this assuming the time value : Mr big Bucks says he will pay you $60,000.00 now for annual payments of $10,000 that you are expected to receive for a legal settlement over the next 10 years. What is the present value of this assuming the time value of the money at 8%?

What would be you expected rate of return : Citigroup issued bonds that pay a coupon interest rateof 6 percent. the bonds mature in 11 years. They are selling for $862. What would be your expected rate of return (yield to maturity) if you bought the bonds? What would the current yield be? What..

What is the yield to maturity of the bond : Assume the market price of a 13 year bond for Margaret Inc. is $1100, and it has a par value of $1000. The bond has an annual of 9 percent that is paid semi-annually. What is the yield to maturity of the bond?

Maturity risk premium is estimated-default-liquidity premium : Drongo Corporation's 4-year bonds yield 5.07%. The real risk-free rate is 2.71%. The maturity risk premium is estimated to be 0.05%(t-1), where t is equal to the time to maturity. The default and liquidity premiums for Drongo's bonds total 1.24% and ..

Bond currently sells-what is the duration of bond : A bond currently sells for $1,110, which gives it a yield to maturity of 5%. Suppose that if the yield increases by 25 basis points, the price of the bond falls to $1,065. What is the duration of this bond?

Pension plan is obligated to make disbursements : A pension plan is obligated to make disbursements of $1.3 million, $2.3 million, and $1.3 million at the end of each of the next three years, respectively. Find the duration of the plan's obligations if the interest rate is 12% annually.

What is the maximum price you should pay for stock : The QuickFix Company just paid a dividend of $3.00 and analysts expect the dividend to grow at its compound average growth rate of 10.72% forever. You plan to purchase the stock then hold it for 10 years. Your expected rate of return is 12%, and the ..

Treasuries are assumed to have no liquidity or default risk : The real risk-free rate is 2.41%. Inflation is expected to be 2.97% this year and 2.4% next year. The maturity risk premium is estimated to be equal to 0.09% (t-1), where t equals the maturity of a bond in years. All treasuries are assumed to have no..

User Account

All Pages