Question

Suppose Baa-rated bonds currently yield 6.1%, while Aa-rated
bonds yield 4.1%. Now suppose that due to an increase in the
expected inflation rate, the yields on both bonds increase by 1.0%.
What would happen to the confidence index? **(Round your
answers to 4 decimal places.)**

Answer #1

Using the following data on bond yields:
This Year
Last Year
Yield on top-rated corporate bonds
4.6
%
7.6
%
Yield on intermediate-grade corporate bonds
6.6
%
9.6
%
a. Calculate the confidence index this year and
last year. (Round your answers to 4 decimal
places.)
b. Is the confidence index increasing or
decreasing?
Increasing
Decreasing

ABC Bonds are currently rated AA. The bonds mature in 10 years
and have a coupon rate of 6.5%. You are convinced that the bonds
will be downgraded to BBB 1 year from now. If AA bonds have a YTM
of 7% and BBB bonds have a YTM of 8.6%, what is your rate of return
on a 1-year investment in ABC Bonds if they are downgraded at the
end of the year? Answer to 4 decimal places, for example...

An analyst estimates that the probability of default on a
seven-year AA-rated bond is 0.57, while that on a seven-year
A-rated bond is 0.43. The probability that they will both default
is 0.41.
a. What is the probability that at least one of
the bonds defaults? (Round your answer to 2 decimal
places.)
b. What is the probability that neither the
seven-year AA-rated bond nor the seven-year A-rated bond defaults?
(Round your answer to 2 decimal places.)
c. Given that...

Suppose 2-year
Treasury bonds yield 5.5%, while 1-year bonds yield 6%. r* is 1%,
and the maturity risk premium is zero. Use minus sign for any
negative expected inflation rate.
a. Using the expectations
theory, what is the yield on a 1-year bond 1 year from now?
Calculate the yield using a geometric average. Do not round
intermediate calculations. Round your answer to two decimal
places.
________ %
b. What is the expected
inflation rate in Year 1? Do not...

Suppose the inflation rate is expected to be 6.3% next year, 4%
the following year, and 3.5% thereafter. Assume that the real
risk-free rate, r*, will remain at 1.55% and that maturity risk
premiums on Treasury securities rise from zero on very short-term
bonds (those that mature in a few days) to 0.2% for 1-year
securities. Furthermore, maturity risk premiums increase 0.2% for
each year to maturity, up to a limit of 1.0% on 5-year or
longer-term T-bonds.
Calculate the...

Ezzell Enterprises' noncallable bonds currently sell for
$879.00. They have a 5-year maturity, semi-annual coupon rate of
12.00%, and a par value of $1000. What is the bond's capital gain
or loss yield?
Round your answer to two decimal places. For example, if your
answer is $345.6671 round as 345.67 and if your answer is .05718 or
5.7182% round as 5.72.
13.70%
15.57%
2.00%
1.92%
13.65%
Suppose 1-year Treasury bonds yield 3.70% while 2-year T-bonds
yield 4.10%. Assuming the pure...

Suppose the inflation rate is expected to be 6% next year, 5%
the following year, and 3% thereafter. Assume that the real
risk-free rate, r*, will remain at 2% and that maturity risk
premiums on Treasury securities rise from zero on very short-term
bonds (those that mature in a few days) to 0.2% for 1-year
securities. Furthermore, maturity risk premiums increase 0.2% for
each year to maturity, up to a limit of 1.0% on 5-year or
longer-term T-bonds.Select the correct...

Question 2
Thatcher Corporation's bonds will mature in 12 years. The bonds
have a face value of $1,000 and a 7% coupon rate, paid
semiannually. The price of the bonds is $1,100. The bonds are
callable in 6 years at a call price of $1,060. What is their yield
to maturity? What is their yield to call?
Question 3
The real risk-free rate of interest is 3%. Inflation is expected
to be 2% this year and 3% during the next...

Suppose the inflation rate is expected to be 7% next year, 6%
the following year, and 4% thereafter. Assume that the real
risk-free rate, r*, will remain at 2% and that maturity risk
premiums on Treasury securities rise from zero on very short-term
bonds (those that mature in a few days) to 0.2% for 1-year
securities. Furthermore, maturity risk premiums increase 0.2% for
each year to maturity, up to a limit of 1.0% on 5-year or
longer-term T-bonds. Calculate the...

Problem 9-15 WACC Estimation
On January 1, the total market value of the Tysseland Company
was $60 million. During the year, the company plans to raise and
invest $20 million in new projects. The firm's present market value
capital structure, here below, is considered to be optimal. There
is no short-term debt. Debt $30,000,000 Common equity 30,000,000
Total capital $60,000,000 New bonds will have an 10% coupon rate,
and they will be sold at par. Common stock is currently selling...

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