Question

The real risk-free rate, r*, is 2%. Inflation is expected to average 1.65% a year for the next 4 years, after which time inflation is expected to average 5.4% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 11.5%, which includes a liquidity premium of 0.7%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

Answer #1

1. The real risk-free rate, r*, is 2.25%. Inflation is expected
to average 3.8% a year for the next 3 years, after which time
inflation is expected to average 4.0% a year. Assume that there is
no maturity risk premium. A 7-year corporate bond has a yield of
8.88%, which includes a liquidity premium of 1.0%. What is its
default risk premium?

1. The real risk-free rate is 2.6%. Inflation
is expected to be 2.15% this year, 4.15% next year, and 2.65%
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? Do not round your intermediate
calculations. Round your answer to two decimal places.
2. A company's 5-year bonds are yielding 9.75%
per year. Treasury bonds with the same maturity...

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1. The real risk-free rate of interest is 1%. Inflation is
expected to be 4% the next 2 years and 7% during the next 3 years
after that. Assume that the maturity risk premium is zero. What is
the yield on 3-year Treasury securities? (5 points)
2. The real risk-free rate of interest is 2.5%. Inflation is
expected to be 2% the next 2 years and 4% during the next 3 years
after that. Assume that the...

The real risk-free rate (r*) is 2.8% and is expected to remain
constant. Inflation is expected to be 6% per year for each of the
next five years and 5% thereafter.
The maturity risk premium (MRP) is determined from the formula:
0.1(t – 1)%, where t is the security’s maturity. The liquidity
premium (LP) on all National Transmissions Corp.’s bonds is 0.55%.
The following table shows the current relationship between bond
ratings and default risk premiums (DRP):
Rating
Default Risk...

The real risk-free rate (r*) is 2.8% and is expected to remain
constant. Inflation is expected to be 5% per year for each of the
next two years and 4% thereafter.
The maturity risk premium (MRP) is determined from the formula:
0.1(t – 1)%, where t is the security’s maturity. The liquidity
premium (LP) on all Pandar Corp.’s bonds is 0.55%. The following
table shows the current relationship between bond ratings and
default risk premiums (DRP):
Rating
Default Risk Premium...

The real risk free rate r* is 0.3%. The expected inflation
rate is 2% this year, 3% next year and 3.5% the year after that.
The DRP and LP for a corporate bond are 1% and 2% respectively. The
MRP is can be found using the equation 0.2*(t-1)%, where t is the
number of years to maturity.
a. Find the yield on a 1-year corporate bond.
b. Find the yield on a 2-year Treasury bond.
c. Find the yield on...

The real risk-free rate (r*) is 2.8% and is expected to remain
constant. Inflation is expected to be 3% per year for each of the
next three years and 2% thereafter.
The maturity risk premium (MRP) is determined from the formula:
0.1(t – 1)%, where t is the security’s maturity. The liquidity
premium (LP) on all Rink Machine Co.’s bonds is 0.55%. The
following table shows the current relationship between bond ratings
and default risk premiums (DRP):
Rating
Default Risk...

The real risk-free rate is 2%. Inflation is expected to be 2.25%
this year and 3.5% during the next 2 years. Assume that the
maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.
%
What is the yield on 3-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.
%

The real risk-free rate is 3.25%. Inflation is expected to be 2%
this year and 4.5% during the next 2 years. Assume that the
maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal places.
%
What is the yield on 3-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.

EXPECTED INTEREST RATE
The real risk-free rate is 2%. Inflation is expected to be 1.5%
this year and 3.75% during the next 2 years. Assume that the
maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.
%
What is the yield on 3-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.
%

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