Question

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: DRP = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described. What is the yield on this 5-year corporate bond? Round your answer to two decimal places.

_______ %

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. Default risk premium + Liquidity premium = 10 year corporate bond yield - 10 year treasury bond yield

Default risk premium + Liquidity premium = 9.90% - 6.70%

Default risk premium + Liquidity premium = 3.20%

2. 5 year Corporate bond yield = 5 year treasury bond yield + Default risk premium + Liquidity premium

5 year Corporate bond yield = 4.60% + 3.20%

5 year Corporate bond yield = 7.80% (Answer)

*Please comment if you face any difficulty and please don't forget to provide positive rating*

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 5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond yields 6.7%, and a...
A 5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond yields 6.7%, and a 10-year corporate bond yields 9.6%. The market expects that inflation will average 2.7% over the next 10 years (IP10 = 2.7%). 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:...
5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond yields 6.1%, and a 10-year...
5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 8.3%. 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: DRP...
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 4.4% 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 3.5% yield. A 10-year Treasury bond yields 6.4%, and a...
A 5-year Treasury bond has a 3.5% yield. A 10-year Treasury bond yields 6.4%, and a 10-year corporate bond yields 9%. 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:...
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:...
A 5-year Treasury bond has a 4.9% yield. A 10-year Treasury bond yields 6.45%, and a...
A 5-year Treasury bond has a 4.9% yield. A 10-year Treasury bond yields 6.45%, and a 10-year corporate bond yields 8.2%. The market expects that inflation will average 1.65% over the next 10 years (IP10 = 1.65%). 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:...
Problem 6-17 Interest Rate Premiums A 5-year Treasury bond has a 4.65% yield. A 10-year Treasury...
Problem 6-17 Interest Rate Premiums A 5-year Treasury bond has a 4.65% yield. A 10-year Treasury bond yields 6.1%, and a 10-year corporate bond yields 8.8%. The market expects that inflation will average 2.85% over the next 10 years (IP10 = 2.85%). 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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT