User Account

All Pages

What is default risk premium on the corporate bond

Assignment Help Financial Management
Reference no: EM131569484

1. A treasury bond that matures in 10 years has a yield of 5.5%. A 10-year corporate bond has a yield of 7%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?

2. An investor in Treasury securities expects inflation to be 2.5% in Year 1, 3.2% in Year 2, and 3.8% each year thereafter. Assume that the real risk-free rate is 2.75% and that this rate will remain constant. Three-year Treasury securities yield 5.75%, while 5-year Treasury securities yield 6.50%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 − MRP3?

Reference no: EM131569484

Questions Cloud

What do you think is fair price for such put option : As a gift to your parents on their anniversary, What do you think is a fair price for such a Put Option?
Provide information and evidence of monitoring processes : Provide information and evidence of monitoring processes that you would use at your place or work (or your preferred organisation),
Investment that will pay you an annual perpetuity : You are offered an investment that will pay you an annual perpetuity. What annual payment will you receive on this investment?
Central role in international business-financial contracts : Why has LIBOR played such a central role in international business and financial contracts?
What is default risk premium on the corporate bond : Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?
Make semiannual payments and are priced at par value : Both Bond Sam and Bond Dave have 12 percent coupons, make semiannual payments, and are priced at par value.
Final shares and net asset value : how many shares would you own at the end of the year? What will the NAV of this fund be at the end of the year?
Money market hedge on payables : Money Market Hedge on Payables Assume that Hampshire Co. has net payables of 200,000 Mexican pesos in 180 days.
What is the expected return of wendy portfolio : Wendy invests $25 in Stock A and $75 in stock B. What is the expected return of Wendy's portfolio?

Reviews

Write a Review

Financial Management Questions & Answers

  Compute cash flow from assets

Risk free rate is 3%. Equity risk premium is 5%. Beta is 2. Using the Capital Asset Pricing Model, compute the cost of equity capital. Earnings Before Interest and Taxes is 200. Depreciation is 50. Capital Expenditure is 55. Net additions to Working ..

  Unsecured sources of short-term loans

John savage has obtained a short term loan from first Carolina Bank. The loan matures in 180 days and is in the amount of $46,000. John needs the money to cover start-up costs in a new business. He hopes to have sufficient backing from other investor..

  Bonds have a coupon rate

A Heights Inc. bonds have a coupon rate of 7%, a yield to maturity of 10%, a face value of $1,000, and mature in 10 years. Which of the following statements is MOST correct?

  Determine payback period and accounting rate of return

Terra Networks is planning to buy injection molding machinery costing $180,000. This machinery’s expected useful life is 5 years. They require a minimum rate of return of 8%, and have calculated the following data pertaining to the purchase and opera..

  Develop computer game-what will cash flows for project be

KADS. Inc.. has spent $300,000 on research to develop a new computer game. The firm is planning to spend $100,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated: they total $40..

  What would annual yield to maturity be on bond

A few years ago, Spider Web, Inc. issued bonds with a 6.49 percent annual coupon rate, paid semiannually. The bonds have a par value of $1,000, a current price of $1,020, and will mature in 13 years. What would the annual yield to maturity be on the ..

  Amount of the semiannual interest payment on the bonds

What is the amount of the semiannual interest payment on the bonds?

  What will be the net cash flow for year one of this project

Your company has spent $350,000 on research to develop a new computer game. The firm is planning to spend $55,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated;  What will be ..

  Calculate the gain or loss on the corporate bond position

The Marcus Corporation plans to issue $5,000,000 of 10-year bonds at par next June, with semiannual interest payments. The company's current cost of debt is 12 percent. Calculate the present value of the corporate bonds if rates increase by 3 percent..

  Calculate the dividend payout ratio

Johnson Products earned $3.10 per share last year and it paid out $.75 dividend. The company’s ROE is 16%. Calculate the dividend payout ratio; Calculate the sustainable growth rate of the company.

  Transaction exposures-what factors would influence decision

If one of your jobs was to manage transaction exposures, what factors would influence your decision?

  How much will each annual payment be

You need to accumulate $96,959 for your son's education. How much will each annual payment be?

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd