Question

A Treasury bond that matures in 10 years has a yield of 4.00%. A 10-year corporate...

A Treasury bond that matures in 10 years has a yield of 4.00%. A 10-year corporate bond has a yield of 8.50%. Assume that the liquidity premium on the corporate bond is 0.65%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer :- Default risk premium on the corporate bond is 3.85%

Explanation :-

Interest rate consist of (Risk free rate + inflation premium + default risk premium + liquidity premium)

Interest rate on treasury bond include (risk free rate + inflation premium) i.e. 4% And liquidity premium of corporate bond is 0.65%. So default risk premium for corporate bond will be 3.85%

That will be

(Risk free rate + inflation) of 4% + liquidity premium of 0.65% + default risk premium of 3.85% = 8.50% rate of corporate bond.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A Treasury bond that matures in 10 years has a yield of 4.00%. A 10-year corporate...
A Treasury bond that matures in 10 years has a yield of 4.00%. A 10-year corporate bond has a yield of 9.00%. Assume that the liquidity premium on the corporate bond is 0.50%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.   %
A Treasury bond that matures in 10 years has a yield of 5.75%. A 10-year corporate...
A Treasury bond that matures in 10 years has a yield of 5.75%. A 10-year corporate bond has a yield of 9.50%. Assume that the liquidity premium on the corporate bond is 0.65%. What is the default risk premium on the corporate bond? Round your answer to two decimal places. The real risk-free rate is 3.0% and inflation is expected to be 2.25% for the next 2 years. A 2-year Treasury security yields 5.85%. What is the maturity risk premium...
A Treasury bond that matures in 10 years has a yield of 5.50%. A 10-year corporate...
A Treasury bond that matures in 10 years has a yield of 5.50%. A 10-year corporate bond has a yield of 7.25%. Assume that the liquidity premium on the corporate bond is 0.55%. What is the default risk premium on the corporate bond? Round your answer to two decimal places. ____ %
A Treasury bond that matures in 10 years has a yield of 4%. A 10-year corporate...
A Treasury bond that matures in 10 years has a yield of 4%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.3%. What is the default risk premium on the corporate bond? Round your answer to two decimal places. %
A 5-year Treasury bond has a 3.25% yield. A 10-year Treasury bond yields 6.1%, and a...
A 5-year Treasury bond has a 3.25% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 8.5%. The market expects that inflation will average 2.1% over the next 10 years (IP10 = 2.1%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...
A 5-year Treasury bond has a 4.05% yield. A 10-year Treasury bond yields 6.8%, and a...
A 5-year Treasury bond has a 4.05% yield. A 10-year Treasury bond yields 6.8%, and a 10-year corporate bond yields 9.8%. The market expects that inflation will average 2.55% over the next 10 years (IP10 = 2.55%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...
A 5-year Treasury bond has a 4.6% yield. A 10-year Treasury bond yields 6.7%, and a...
A 5-year Treasury bond has a 4.6% yield. A 10-year Treasury bond yields 6.7%, and a 10-year corporate bond yields 9.9%. The market expects that inflation will average 2.4% over the next 10 years (IP10 = 2.4%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...
A 5-year Treasury bond has a 4.4% yield. A 10-year Treasury bond yields 6.85%, and a...
A 5-year Treasury bond has a 4.4% yield. A 10-year Treasury bond yields 6.85%, and a 10-year corporate bond yields 8.4%. The market expects that inflation will average 1.5% over the next 10 years (IP10 = 1.5%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...
A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.1%, and a...
A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 8.45%. The market expects that inflation will average 3.75% over the next 10 years (IP10 = 3.75%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...
A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 6.4%, and a...
A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 6.4%, and a 10-year corporate bond yields 9.25%. The market expects that inflation will average 3.3% over the next 10 years (IP10 = 3.3%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT