Determination of interest rates

Assignment Help Finance Basics
Reference no: EM1334033

The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 5% per year for each of the next three years and 4% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.l(t - 1)%, where t is the security's maturity. The liquidity premium on all Pettigrew Power Co.'s bonds is 0.75%. The following table shows the current relationship between bond ratings and default risk premiums:

Rating Default Risk Premium
U.S. Treasury -
AAA 0.60%
AA 0.80%
A 1.05%
BBB 1.45%

What is the yield on a seven-year, AA-rated bond issued by Pettigrew? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average.

Reference no: EM1334033

Questions Cloud

Master production schedules : Why are master production schedules necessary for manufacturers?
Allocating overhead costs among products : Why is it sometimes important to allocate overhead costs among products, services or some other grouping? Other times the allocations should be disregarded as in this case - why?
Show the legal issues the organization is facing : What are the federal requirements the organization should consider when developing employment policies and legal issues the organization is facing related to staffing system management?
What would be the value of the flags : If the last operation performed on a computer with an 8-bit word was an addition in that the two operands were 00000010 and 00000011, what would be the value of the following flags.
Determination of interest rates : What is the yield on the seven-year, AA-rated bond issued by Pettigrew? Disregard cross-product terms; that is, if averaging is required, use arithmetic average.
Calculate the total inventory cost : Allsap Apple Company buys apples from local orchards and presses them to produce apple juice. The pulp that remains after pressing is sold to farmers as livestock food. Calculate the total inventory cost.
What interviewing method will you use : What interviewing method will you use and why and What will you do to ensure a reliable and valid screening process is used?
What is the best process to prevent it : What is the best process to prevent it. What is your experience with Spam? How is spam affecting the Internet as a whole.
Sec impact financial decision-making : What is the SEC? How does it impact financial decision-making? What constraints might it put on a company?

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Time value of money important to company

Select an apparel company planning another facility: Discuss interest rates to begin today or in six months using TVM. How is the time value of money important to the company?

  Libraries of future

Given emerging information technology, there's controversy regarding the continuing viability of this marketing concept. One view of how the concept might continue to evolve is from renowned futurist, Thomas Frey. Using the following websites:

  Workplace surveillance

Make a memo on the workplace surveillance including discussions on legislation, controversies, and future direction.

  Computation of expected return based on capital asset

Computation of expected return based on capital asset pricing model and while Black Company stock has a beta of 1.0 and a required return of 12%

  Computation of weighted average cost of capital

Computation of weighted average cost of capital and What is Jake's weighted average cost of capital

  Computing amount of semi-annual investment

Jean Cleveland currently has $5,750 in a money market account paying 5.65 percent compounded semi-annually. How much should she invest in money market account semi-annually over the next five years to achieve this target?

  Computation the present value of the portfolio of investment

Computation the present value of the portfolio of investments and what is the present value of her inheritance

  Pv an fv pf annuity due

What are the PV and FV of a 10-year ordinary annuity of $500 at 10% and PV and FV of the same annuity if it bacomes an annuity due?

  Explain mutually exclusive projects

Explain mutually exclusive projects and Construct a choice table for interest rates from 0% to 100%

  Dividend growth model or capital asset pricing model

Do you feel that the Dividend Growth Model or the Capital Asset pricing Model is more accurate in determine the cost of a firm's common equity? Defend your answer.

  Finance question-defining terms

Illustrate out the following terms and describe how they affect one another. More specifically, for what purposes are they employed and how do they relate to one another: efficient portfolio, individual investor, short selling, Sharpe ratio, beta ..

  Adjust the financial statements on posting balance sheet

adjust the financial statements  on posting Balance Sheet and Material loss on a year-end receivable because of a customer's bankruptcy

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