Reference no: EM132002114
1) A company's 5-year bonds are yielding 8.6% per year. Treasury bonds with the same maturity are yielding 7.25% per year, and the real risk-free rate (r*) is 2.85%. The average inflation premium is 4%, 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 0.85%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
2) The real risk-free rate is 2.25%. Inflation is expected to be 2.05% this year, 4.2% next year, and then 2.35% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Round your answer to two decimal places.
3) An investment will pay $100 at the end of each of the next 3 years, $250 at the end of Year 4, $400 at the end of Year 5, and $500 at the end of Year 6.
If other investments of equal risk earn 12% annually, what is its present value? Round your answer to the nearest cent.
If other investments of equal risk earn 12% annually, what is its future value? Round your answer to the nearest cent.
4) If you deposit $10,000 in a bank account that pays 10% interest annually, how much would be in your account after 5 years? Round your answer to the nearest cent.