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Default Risk Premium
A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 6.1% per year, and the real risk-free rate (r*) is 2.1%. The average inflation premium is 3.6%, 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 1.2%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
You are about to purchase your first home for a purchase price of $323,210 and would like to know the amount of money needed at closing. You will place a 17% down payment and will pay 2 points on the loan. Other miscellaneous closing costs (appraisal..
In the first year payments are to be exchanged, suppose that LIBOR is 4%. What is the amount of the payment that the two parties must make to each other?
Jerry, who is age 56, was just called into the President’s office at Napa Sunrise, Inc. He just learned that his position has been eliminated in the recent reorganization. While he is devastated, he thinks he may attempt to retire and work on his gol..
Small Corporation would like to forecast the value of the Cyprus pound (CYP) five years from now using forward rates. Unfortunately, Small is unable to obtain quotes for five year forward contracts. However, Small observes that the five year interest..
A $100,000 portfolio is invested in a risk-free security and two stocks. The beta of stock A is 1.80 while the beta of stock B is 0.20. One-half of the portfolios is invested in the risk-free security. How much is invested in stock A if the beta of t..
Jiminy's Cricket Farm issued a 30-year, 7 percent semi-annual bond 6 years ago. The bond currently sells for 80 percent of its face value. The book value of the debt issue is $19 million. The company's tax rate is 32 percent. What is the company's to..
(Cost of debt) The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1,000 par value bods with a 15-year maturity at a price of $948 that carry a coupon interest rate of 12.6 ..
Assume that interest rates on 20-year Treasury and corporate bonds are as follows: The differences in tese rates were probably caused primarily by:
Assume that a new project will annually generate revenues of $2,300,000 and cash expenses (including both fixed and variable costs) of $700,000, while increasing depreciation by 170,000 per year. In addition the firm’s tax rate is 33%. Calculate the ..
The Summer Clothing Co. is expected to pay an annual dividend of $3.10 per share and sells for $55.47 a share based on a market required rate of return of 14 percent. What is the dividend yield? What is the capital gains yield?
What is the value of a three-month European call option on the futures with a strike price of 42 if the risk-free interest rate is 7% per annum?
Which of the following will cause the value of a bond to increase, other things held the same?
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