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1. You are considering an investment in a one-year government debt security with a yield of 4.5 percent or a highly liquid corporate debt security with a yield of 7.25 percent. The expected inflation rate for the next year is expected to be 3 percent.
a) What would be your real rate earned on either of the two investments?
b) What would be the default risk premium on the corporate debt security?
2. A Treasury note with a maturity of four years carries a nominal rate of interest of 11.5 percent. In contrast, an 8-year Treasury bond has a yield of 7.5 percent.
a) If inflation is expected to average 6 percent over the first four years, what is the expected real rate of interest?
b) If the inflation rate is expected to be 4.5 percent for the first year, calculate the average annual rate of inflation for years two through four.
3. The real rate is 2.5%. Inflation is expected to be 3.25% this year and 1.5% during the next 2 years. Assume the maturity risk premium is 0. What is the yield on 3-year Treasury securities?
Company A's 10 percent coupon rate, quarterly payment, $1,000 par value bond, which matures in 10 years, currently sells at a price of $980. The company's tax rate is 38 percent. Based on the nominal interest rate, what is the firm's component cost o..
Mario's auto shop plans to purchase a new garage in 3 years to have more space for repairing it's trucks. The garage cost $400,000. What lump sum amount should the company spend now to have the $400,000 available at the end of the 3 yr period?
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your firm needs a computerized machine tool lathe which costs 48000 and requires 11800 in maintenance for each year of
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on january 1 2011 piper co. issued ten-year bonds with a face value of 1000000 and a stated interest rate of 10
The "Inflation-Plus" CD is the safer investment because it guarantees the purchasing power of the investment
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