Determine the maturity risk premium

Reference no: EM1353361

1. Suppose the following relationships for the Dawn Corporation:
Sales/total assets= 10x
Return on assets= 15%
Return on equity= 25%

What is the real risk free rate for 3-month if the inflation for 3 months is estimated as 4%?
What is Dawn's debt ratio?

2. Suppose the following data on yields from holds:
3-month T-Bill=5.0%
30-year T-Bond=6.5%
30-year AAA Corporate=7.3%
30-year Municipal=5.475%

What is the maturity risk premium on 30-year Treasury bonds? Assume the expected inflation for 3-month T-Bills and 30-year T-Bonds is the same.

What is the real risk free rate for 3-month if the inflation for 3 months is estimated as 4%?

What is the default risk premium on 30-year AAA corporate bonds? Assume there exist liquid markets for AAA corporate bonds.

3. To finish college, you need $18,000 per year for 4 years, starting next year (that is, you will need to withdraw $18,000 one year from today). A relative offers to pay the expense by depositing in a bank time deposit paying 5 percent interest a sum of money that is sufficient to provide the four payments of $18,000 each. His deposit will be made today. How large must the deposit be?

Reference no: EM1353361

Questions Cloud

Compute the capital gains yield : Assume an index of small company stocks started in 1946 at 10, and the index level was 1890.59 in 2001. Compute the capital gains yield of the small firm stocks for the period?

Design of e-business applications : With that in mind, how do you think the Americans with Disabilities Act affects website design and design of E-business applications?

Calculate magnitude of the planes velocity : A 12.0 resistor, 10.0 mH inductor, and a 50.0 µF capacitor are connected in series to a 55.0 V (rms) source having variable frequency. Find out the energy delivered to the circuit during one period if the operating frequency is twice the resonance..

Training implementation and the affect of culture : Provide a summary of the who, what, and why of the case and was the organization ready for the training? Should management have done more planning?

Determine the maturity risk premium : Determine the maturity risk premium on thirty year Treasury bonds? Assume the expected inflation for 3-month T-Bills and 30-year T-Bonds is the same.

What is the lift orce exerted on the air by the rotors : A rectangular container measuring 24 cm 48 cm 55 cm is filled with water. What is the mass of volume of water in kilograms.

Elucidate how the changes in the monetary policy effectivene : elucidate how the changes in the monetary policy effectiveness lag and the interest-rate multiplier affects how much and how long monetary policymakiers must change interst rates in response to any given demand shock.

Organisational changes to implement the long-term plan : What organisational changes are necessary in order to implement the long-term plan derived in question number two above?

Southwest airlines-employees and organizational culture : Southwest Airlines' management believes that employees come first and customers come second. Assess the merits of this belief, indicating your agreement or disagreement with the approach. Provide support for your position.

User Account

All Pages