User Account

All Pages

Default risk premium

Assignment Help Financial Management
Reference no: EM131492958

Default Risk Premium

A company's 5-year bonds are yielding 7.65% per year. Treasury bonds with the same maturity are yielding 5.1% per year, and the real risk-free rate (r*) is 2.2%. The average inflation premium is 2.5%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.3%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

Reference no: EM131492958

Questions Cloud

Returns on an asset are normally distributed : Suppose the returns on an asset are normally distributed. What range of returns would you expect to see 95 percent of the time?
Write a program for your microcontroller in c : Write a program for your microcontroller in C and then in assembly (or vice versa) to find the largest of thirty-two 8-bit two's-complement numbers in 32.
Why did the company MdP enter into a second swap : FINS 5535 Derivatives and Risk Management Techniques Project. Why did the company MdP enter into a second swap in 2007
What have you learn about c programming for embedded system : What have you learned about C programming for embedded systems that is different from programming in a desktop environment?
Default risk premium : A company's 5-year bonds are yielding 7.65% per year. what is the default risk premium on the corporate bonds?
Average nominal risk premium on crash-n-burns stock : What was the average real return on Crash-n-Burn’s stock? What was the average nominal risk premium on Crash-n-Burn’s stock?
Which type of i-o addressing separate i-o or memory mapped : List parallel 110 devices used with computers you arc familiar with either in the laboratory or in a personal computer.
Calculate the yield using geometric average : One-year Treasury securities yield 3.05%. The market anticipates that 1 year from now, Calculate the yield using a geometric average.
Evaluate the proposed acquisition of new special : You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $140,000.

Reviews

Write a Review

Financial Management Questions & Answers

  What is the company''s current stock price

The Zumwalt Company is expected to pay a dividend of $2.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and t..

  Compound return earned per year over a multiyear period

Which one of the following is defined as the average compound return earned per year over a multiyear period? Normal distribution of returns Variance of returns Geometric average returns Arithmetic average return Standard deviation of returns

  Considering setting up a firm to produce widgets

You are considering setting up a firm to produce widgets. The cost of the project is $30 today. The demand for widgets is uncertain. It can be either high or low with equal probability. When the demand is high cash flows in t = 1 are $66 and when the..

  Several personal financial problems

List several personal financial problems for which you or other individuals might use the concepts from the Lectures to help you make this decision. Calculate the value in 5 years of $1,000 deposited in a savings account today if the account pays int..

  What is the NPV break-even level of diamonds sold per year

What is the NPV break-even level of diamonds sold per year assuming a tax rate of 40%, a 10-year project life, and a discount rate of 14%?

  Cash conversion cycle-affecting sales and cost of goods sold

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $190,000 (all on credit), and it earned a net profit of 7%. Its inventory turnover was 4.87064 times during t..

  Computing the present value of future dollars

Computing the present value of future dollars is known as:

  Manufactures and sells ecological cotton fleece

Panda AB manufactures and sells ecological cotton fleece and is expected to have a free cash flow of 10 million SEK during next year. This cash flow is expected to grow by 4% from next year and onwards. What is the WACC before tax for Panda? What wou..

  Inflation-recession-high interest rates are economic events

Inflation, recession, and high interest rates are economic events that are best characterized as being

  Reward-to-risk ratios-market risk premium

Reward-to-Risk Ratios. Stock Y has a beta of 1.50 and an expected return of 16 percent. Stock Z has a beta of .70 and an expected return of 11.5 percent. If the risk-free rate is 5.5 percent and the market risk premium is 8 percent, are these stocks ..

  Consider a bond that pays coupons semi-annually

Consider a bond that pays coupons semi-annually. The bond has a face value of $1,000 and will mature 10 years from now. The current price of the bond is $960.09, and its yield to maturity is 4.5% per year compounded semi-annually. Calculate the amoun..

  What is the duration of a five-year zero-coupon bond

What is the duration of a five-year zero-coupon bond?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd