Default risk premium table in the text

Assignment Help Finance Basics

Reference no: EM13746540

This has to be done in excel.

a- Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7 year, A-rated corporate bond. The current real risk-free rate is 4 percent, and inflammation is expected to be 2 percent for the next two years, 3 percent for the following 4 years, and 4 percent thereafter. The maturity risk premium is estimated by this formula: MRP = 0.1% (t - 1). The liquidity premium for the corporate bond is estimated to be 0.7 percent. Finally, you may determine the default risk premium, given the company's bond rating, from the default risk premium table in the text. What yield would you predict for each of these two investments?

b- Given the following Treasury bond yield information from the March 27, 2003, Federal Reserve Statistical Release, construct a graph of the yield curve as of that date.

Maturity Yield

3 months 1.16 %

6 months 1.17

1 year 1.25

2 years 1.62

3 years 2.05

5 years 2.92

7 years 3.50

10 years 3.95

20 years 4.96

c- Based on the information about the corporate bond that was given in part a, calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds.

Reference no: EM13746540

Questions Cloud

Explain the assisnation of dr martin luther king : The assisnation of Dr. Martin Luther King. Choose a mystery or scandal from the second half of the 20th century and write a 3 page essay

Human assets versus other organizational assets : Why does senior management often fail to realize the value of human assets versus other organizational assets.

Write a vignette that could be used by tyco : Tyco used vignettes to communicate changes in ethical behavior. Write a vignette that could be used by Tyco to assist in overcoming the cultural change barriers that companies like Tyco faced

How does the location of a speech shape the message : How does the location of a speech shape the message? Use JFK's "Berlin Wall," MLK's "I Have a Dream," and Fulton Sheen's "Role of Communism" speech to illustrate your points.

Default risk premium table in the text : The liquidity premium for the corporate bond is estimated to be 0.7 percent. Finally, you may determine the default risk premium, given the company's bond rating, from the default risk premium table in the text. What yield would you predict for ea..

What is the amount of profit you earned : Determining Profit or Loss from an Investment. What is the amount of profit you earned on each share of IBM stock

Value of the price elasticity of demand : What course of action do you recommend for it assuming it wants to raise revenue and total revenue by producing in the inelastic portion of its demand curve

First national corporate image and tradition : Does asset-based lending fit First National's corporate image and tradition? Its lending philosophy? Explain. Does asset-based lending improve the bank's return on net worth (RONW) and return on assets (ROA)?

Write a historic review for soraya : Write a historic review For Soraya.

User Account

All Pages