Computation of risk premium on bonds

Assignment Help Finance Basics

Reference no: EM1314860

1) If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

a. 1.00%

b. 1.10%

c. 1.20%

d. 1.30%

e. 1.40%

2) Keys Corporation's 5-year bonds yield 6.50%, and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the default risk premium for Keys' bonds is DRP = 0.50% versus zero for T-bonds, the liquidity premium on Keys' bonds is LP = 1.7%, and the maturity risk premium for all bonds is found with the formula MRP = (t? 1)*0.1%, where t = number of years to maturity. What is the inflation premium (LP) on 5-year bonds?

a. 1.50%

b. 1.60%

c. 1.70%

d. 1.80%

e. 1.90%

Reference no: EM1314860

Questions Cloud

Advantages also disadvantages of stock-for-stock : Elucidate the advantages also disadvantages of stock-for-stock transactions also cash-for-stock transaction.

Find the current in the loop : A chair of weight 130 N lies atop a horizontal floor; the floor is not frictionless. You push on the chair with a force of F = 43.00 N directed at the angle of 35.0 degrees below the horizontal and the chair slides along the floor. Using Newton's law..

Currencies of industrialized countries : Why do you think the bid/ask spread is higher for pesos than it is for currencies of industrialized countries. Elucidate how does this affect a U.S. firm which does substantial business in Mexico.

Calculate additional finance requirements : Calculate Additional Finance Requirements and CFO of IPOD Accessories, Inc. has asked for your help in estimating the firm's additional financing needed for next year.

Computation of risk premium on bonds : Computation of risk premium on bonds and what is the default risk premium on the corporate bond

What kind of equation or background information : A 128 carton is pulled up a frictionless baggage ramp inclined at 30.0 above the horizontal by a rope exerting a 72.60 pull parallel to the ramp's surface. If the carton travels 5.20 along the surface of the ramp, compute the work done on it by the r..

Dell computers has an outstanding matter of bond : Dell Computers has an outstanding matter of bond with a par value of $1,000, paying 8 percent coupon rate. The bond has 10 yrs to maturity.

Describing limit pricing : For several years, Palm was the dominant manufacturer of PDAs (personal digital assistants). However, a number of other manufacturers have since entered the PDA market.

Sampling error and simple random sampling : When a sample mean is greater than the true, population mean, the resulting difference is called:

User Account

All Pages