What is the default risk premium on the corporate bond

Assignment Help Financial Management
Reference no: EM131442426

A Treasury bond that matures in 10 years has a yield of 3%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.7%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.

Reference no: EM131442426

Questions Cloud

Review the plagiarism spectrum : To prepare for this activity, please review The Plagiarism Spectrum: Tagging 10 Types of Unoriginal Work (Turnitin, 2012). Review Instructor Guidance and Announcements. Part of scientific research includes conveying knowledge (about theory, rese..
How will you apply what you have learned in the course : How will you apply what you have learned in this course to the Marketing and Strategy Business Plan that you've been developing throughout your MBA studies?
Determine the future value of our deposit : Consider the formula we used to determine the future value of our deposit. Is this formula a realistic approximation of what we could expect from an investment or are there other issues or factors that must be considered? Besides savings accounts, wh..
Portfolio with one-week standard deviation : You have $10m portfolio with a one-week standard deviation of 1%. You will add $10m of an asset to the portfolio. The one-week standard deviation of the return of the new asset is 1%. Compute the 95% $VaR of the original $10m, the 95% $VaR of the new..
What is the default risk premium on the corporate bond : A Treasury bond that matures in 10 years has a yield of 3%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.7%. What is the default risk premium on the corporate bond?
Draw a savings-investment diagram-increased budget deficit : Assume that Ricardian equivalence holds. What happens to national savings when the government increases the deficit? What happens to private savings?
What is your new estimate of the company stock price : Fincher Manufacturing has projected sales of $147.4 million next year. Costs are expected to be $82.2 million and net investment is expected to be $16.2 million. Each of these values is expected to grow at 15 percent the following year, with the grow..
Re-calculate the rate of return : If an investment of $5,000 resulted in income of $1,000 per year for 10 years, then what was the Rate of Return (ROR), i%, on the investment?  (b) Re-calculate the  Rate of Return (ROR), i%, using the Excel RATE function and record your cell entry an..
Markup on material and you wish to recoup all your costs : You own a car body/paint repair shop. You have been asked to submit a bid to repair ten (10) identical cars from a dealer lot that were all similarly damaged by a hail storm. Each car requires a new hood, roof, decklid, and total repainting. If there..

Reviews

Write a Review

Financial Management Questions & Answers

  Compute the effective cost of the loan

Quantum Inc., a U.S.-based corporation, borrows SF 2,000,000 from the Swiss bank, UBS. The entire principal is to be repaid at the end of the year, and the interest rate is 4% per annum to be paid at the end of the year in Swiss francs. Suppose that ..

  The general journal entry to record this transaction

On September 1, Ziegler Corporation had 71,000 shares of $5 par value common stock, and $213,000 of retained earnings. On that date, when the market price of the stock is $15 per share, the corporation issues a 2-for-1 stock split. The general journa..

  Purchasing-power and parity

Purchasing Power Parity: Corporate financial managers must constantly monitor the foreign exchange markets when their firm is operating internationally. A popular index that tracks the Law of One Price is the Big Mac Index. This index is reported reg..

  Very special kind of lottery

You just won a very special kind of lottery. Instead of receiving a large lump sum now, for tax reasons this lottery makes equal yearly payments of $ 5,760 for the rest of your life! The only catch is that you have to wait 2 years for the first payme..

  Deduction for purposes of calculating taxable income

ATIRR Unlevered: Income taxes are taken into account in the calculation of IRR. 75% of Mr. Beyer’s purchase price of $92,000,000 is attributable to the improvements (the building) and will be depreciated on a 39-year straight-line basis. As you know,..

  Use a three time step tree to value an american put option

Use a three-time-step tree to value an American put option on the geometric average of the price of a non-dividend-paying stock when the stock price is $40, the strike price is $40, the risk-free interest rate is 10% per annum, the volatility is ..

  What is incremental costs associated with producing

Consider the production cost information for Mama Italiano Sauce given below: Mama Italian Sauce Production Cost Budget April 2008 Production - Jars of sauce 20,000 Ingredient cost (variable) $16,000 Total $36,000 The company is currently producing a..

  Unfortunately ran a bit over budget

Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $13,700 balance from your current credit card, which charges an annual rate of 21.5 percent, t..

  Implied by the two outstanding debt issues

Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate..

  What is standard way to calculate companys cost of capital

What is the standard way to calculate a company’s cost of capital? And what important observations have been offered by finance theory when estimating a firm’s WACC?

  Traditional fishing anchor and high-end yacht anchor

Easton Corporation makes two different boat anchors--a traditional fishing anchor and a high-end yacht anchor--using the same production machinery. The contribution margin of the yacht anchor is three times as high as that of the other product.

  How long will it be before you have enough to buy the car

You’re trying to save to buy a new $190,000 Ferrari. You have $31,000 today that can be invested at your bank. The bank pays 3.8 percent annual interest on its accounts. How long will it be before you have enough to buy the car?

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