Explain the default risk and liquidity premiums for bonds

Assignment Help Financial Management
Reference no: EM13215491

Drongo Corporation's 4-year bonds currently yield 7.4 percent. The real risk-free rate of interest, r*, is 2.7 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t - 1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 0.9 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 5 percent for years 5, 6, and 7, what is the yield on a 7-year bond for Drongo Corporation?

Reference no: EM13215491

Questions Cloud

Create scenario which is acceptable for an external auditor : Create a scenario where it would be acceptable for an external auditor to accept an audit engagement without having knowledge of a client's business environment. Ascertain the key legal ramifications and risk mitigation strategies associated
Describing the role of the judges : Describing the role of the judges in Israel during the settlement period. Use the GCU eLibrary to identify and use two scholarly sources in addition to the text.
Explain the default risk and liquidity premiums for bonds : The default risk and liquidity premiums for this company's bonds total 0.9 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 5 percent for years 5, 6, and 7, what is the y..
How many gas and electric trimmers should weedwacker make : How many gas and electric trimmers should Weedwacker make, and how many should it buy in order to fulfill its contract in the least costly manner?
Explain the default risk and liquidity premiums for bonds : The default risk and liquidity premiums for this company's bonds total 0.9 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 5 percent for years 5, 6, and 7, what is the y..
What specific data about the entities will need to be stored : The system will need to record data about what entities? What specific data about the entities will need to be stored?
Muscular activities of surrounding skeletal muscles : The movement of lymph through lymphatic vessels is caused in part by muscular activities of surrounding skeletal muscles
Determine optimal solution and its resulting optimal profit : Sketch all the constraints and the feasible region for this problem in a coordinate system and determine the optimal solution and its resulting optimal profit?
Summarize the facts and ethical issues noted in the article : Summarize the facts and ethical issues noted in the article. Cite your source within the body of your initial post and provide a complete reference for the source, formatted according to APA style as outlines in the Ashford Writing Center, at the ..

Reviews

Write a Review

Financial Management Questions & Answers

  Explain cash management system

Average daily remittances are $5 million, and "extended disbursement float" adds 3 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 10% on excess funds

  Individual rehabilitation services (irs)

Individual Rehabilitation Services (IRS), Determine the minimum federal income tax liability and the taxes owed at the time of filing based on the following data:

  Methods of cost estimation rely primarily on historical data

What methods of cost estimation rely primarily on historical data? Describe the problems an unwary user may encounter with the use of historical cost data.

  Describe the target capital structure

The last dividend paid by Marquette Inc. was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its ..

  Interim assessment of international financial management

Assessment for the Interim Assessment of International Financial Management - the value to QN of taking out short term derivatives and a comparison between futures and a forward rate

  Financial decision-making techniques

Complete a project that helps you apply theoretical knowledge of financial planning to practical applications. It is a proven fact that learning by doing is more effective than reading theory.

  Explain the company wishes to know the market value

An oil company has paid $100,000 for the right to pump oil on a plot of land during the next three years. A well has already been sunk and all other necessary facilities are in place. The land has known reserves of 60,000 barrels. The company wish..

  Compute the black-scholes price for a call

Compute the Black-Scholes price for a call option with a strike price of $120, ?rst for a maturity of one year, and then for a variety of very long times to maturity.

  Compute the expected project length

Calculate the expected project length, variance of the critical path, standard deviation of the critical path and the activities along the critical path.

  Determine the increase in the annual after-tax profits

Accurately derived the formula to determine the increase in the annual after-tax profits by selecting the optimal transfer price and accurately calculated the optimal transfer price.

  Explain the firm''s cash flow due to financing activities

At the end of the year, Tum Biscuit Co. had $160 million in cash on its balance sheet, and the firm had $305 million in cash at the end of the second year. What was the firm's cash flow (CF) due to financing activities in the second year?

  Function of finance manager

Function of finance Manager and profit maximization does consider the impact on individual shareholder's EPS.

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