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Treasury securities upward sloping or downward sloping

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Reference no: EM131319330

BK just issued 100,000 shares of corporate bond. The bond has par value $1000, a coupon rate of 5 percent which is paid semiannually and matures 10 years from today. To determine the nominal required rate of return, the following market information is collected.

1) A share of 5 year 4.25% coupon Treasury note is sold at $1028.58.

2) A share of 10 year 4.25% coupon Treasury note is sold at $1022.10.

3) The liquidity and default risk premium is 2% for BK’s bond.

Both of the T-notes have $1000 par value.

Required: a. Determine the nominal 5 year T-note rate and 10 year T-note rate. Is the yield curve for Treasury securities upward sloping or downward sloping?

b. What is the price for BKs bond?

c. Suppose you have noticed that the slope of the corporate yield curve has become steeper over the past months. What factors might explain the change in slope?

Reference no: EM131319330

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