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A company's 5-year bonds are yielding 9.65% per year. Treasury bonds with the same maturity are yielding 6.2% per year, and the real risk-free rate (r*) is 2.15%. The average inflation premium is 3.65%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.15%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
Even if the five banks provided the same effective annual rate, would a rational investor be indifferent between the banks? Explain.
Summarize the generic strategy employed byProctor & Gamble and how it helps the company achieve sustained competitive advantage. Which of the generic competitive strategy options is P&G pursuing? How does pursuit of this strategy help P&G achieve sus..
As of 2015, per capita spending on health care in the United States was about $9000. If this amount increased by 5 percent a year, what would be the amount per capita spending for health care in 12 years?
Suppose that Brown-Murphies’ common shares sell for $24.50 per share, that the firm is expected to set their next annual dividend at $0.77 per share, and that all future dividends are expected to grow by 5 percent per year, indefinitely. Assume Brown..
You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 15 percent, –6 percent, 18 percent, 14 percent, and 10 percent. What was the arithmetic average return on Crash-n-Burn’s stock over this five-year period..
Midland Oil has $1,000 par value bonds outstanding at 8 percent interest. The bonds will mature in 25 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. C..
Maggie's Muffins, Inc., generated $2,000,000 in sales during 2013, and its year-end total assets were $1,400,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: A 6 percent semiannual coupon bond an..
Delta Ray Brands Corp. just completed their latest fiscal year. The firm had sales of $16,306,200. Depreciation and amortization was $898,000, interest expense for the year was $804,700, and selling general and administrative expenses totaled $1,513,..
Mexican interest rates are normally substantially higher than U.S. interest rates. What does this imply about the forward premium or discount of the Mexican peso?
In a currency swap, a dealer is paying fixed rate dollar and receiving fixed rate euro. Suppose that he enters into the swap and immediately thereafter dollar becomes weaker against euro (that is, euro appreciates against dollar) while interest rates..
An important part of business is to plan ahead. Identify three planning tools used for forecasting and the information each provides.
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