Calculate the bonds default risk premium

Assignment Help Financial Management
Reference no: EM131027050

Dakota Corporation 15-year bonds have an equilibrium rate of return of 10 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.50 percent. The security’s liquidity risk premium is 1.20 percent and maturity risk premium is 1.80 percent. The security has no special covenants. Calculate the bond’s default risk premium. (Round your answer to 2 decimal places.)

Reference no: EM131027050

Questions Cloud

The dividend yield and the capital gains yield : Suppose a stock had an initial price of $90 per share, paid a dividend of $2.40 per share during the year, and had an ending share price of $76. Compute the percentage total return. What was the dividend yield and the capital gains yield?
Expected net present value of this purchase opportunity : Stu can purchase a one-bedroom house near his college today for $110,000, including the cost of some minor repairs. He expects to be able to resell it in four years for $150,000 if he just puts a little effort into cleaning up the property. At a disc..
Identical deposit each year up to and including the year : Today is your birthday and you decide to start saving for college. You will begin college on your 18th birthday and will need $10,000 per year at the end of each of the next 4 years (after that 18th birthday - isn't it nice the college lets you pay a..
What is the profit equation for the company : Soumotchka Accessories make customized handbags to order. The price they can charge depends on how many they sell, x, consistent with the expression: What is the profit equation for the company?
Calculate the bonds default risk premium : Dakota Corporation 15-year bonds have an equilibrium rate of return of 10 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.50 percent. The security’s liquidity risk premium is 1.20 percent and m..
What is the NPV and IRR of the project : Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$592,000 1 222,000 2 165,000 3 230,000 4 209,000 All cash flows will occur in Erewhon and are expressed in dollars...
Calculate the initial outlay and depreciable asset : A company is purchasing a new machine which will cost $130,000 with additional shipping costs of $5,000 and set up and installation costs of $12,000. An additional $8,000 in Net Working Capital will be required. Calculate the Initial Outlay (startup ..
The increment to the market value of the equity equals : Red Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. Assume that the increment to the market value of the equity equals the gross pr..
Equity before the announcement of the debt issue : Green Manufacturing, Inc., plans to announce that it will issue $1.92 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 6 percent.  What is the expected return on Green’s equit..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the total market value of its equity

Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.8 million shares that are outstanding. Shareholders require a 8% rate of return from Consolidated stock. What is the total market value of its equi..

  What was the true annualized return

You buy a stock for $20. After a year the price rises to $25 but falls back to $20 at the end of the second year. What was the average percentage return and what was the true annualized return?

  Reduce its economic exposure to exchange rate risk

Kerr, Inc., a major U.S. exporter of products to Japan denominates its exports in dollars and has no other international business. It can borrow dollars at 9 percent to finance its operations or borrow yen at 3 percent. If it borrows yen, it will be ..

  What is the expected return on the portfolio

You own a portfolio that has $2,000 invested in Stock A and $3,500 invested in Stock B. The expected returns on these stocks are 14 percent and 9 percent, respectively. What is the expected return on the portfolio?

  Outstanding bond issue

Midland Utilities has an outstanding bond issue that will mature to its $1,000 par value in 15 years. The bond has a coupon rate of 11% and pays interest semiannually.

  Common stock-market and preferred stock

You are given the following information for Lightning Power Co. Assume the company’s tax rate is 30 percent. Debt: 6,000 7.9 percent coupon bonds outstanding, $1,000 par value, 25 years to maturity, selling for 108 percent of par; the bonds make semi..

  Discuss the hedging uses of swaps

Discuss the hedging uses of swaps. How would a person or company benefit from the use of swaps? Provide illustrations in today's economy of different persons or companies using swaps to hedge risks in the marketplace. What can go wrong when using swa..

  Role of consultant with ten years experience in public funds

You are in the role of a consultant with ten years experience in the public financial management industry. A group of 20 civic leaders are considering forming a new task force and have asked you to prepare a proposal on whether they should build a fa..

  What forms can strategic alliances takewhat is the

1. what is a strategic alliance?2. do most strategic alliances succeed?3. what forms can strategic alliances take?4.

  For bond valuation-bond is currently trading at a discount

For bond valuation, if the bond is currently trading at a discount, then the

  What is this projects equivalent annual cost

A five-year project has an initial fixed asset investment of $265,000, an initial NWC investment of $21,000, and an annual OCF of −$20,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..

  The financial services modernization act

The Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley Act) basically repealed the Glass-Steagall Act of 1933. Do you believe the passage of this Act was beneficial for the banking industry, or will it be a detriment to the industry in ..

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