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1. The spread between the yield on a 3-year corporate bond and the yield on a similar riskfree bond is 50 basis points. The recovery rate is 30%. Estimate the average hazard rate per year over the 3-year period.
2. Suppose that in Problem the spread between the yield on a 5-year bond issued by the same company and the yield on a similar risk-free bond is 60 basis points. Assume the same recovery rate of 30%. Estimate the average hazard rate per year over the 5-year period. What do your results indicate about the average hazard rate in years 4 and 5?
Problem :The spread between the yield on a 3-year corporate bond and the yield on a similar riskfree bond is 50 basis points. The recovery rate is 30%. Estimate the average hazard rate per year over the 3-year period.
A condominium is purchased for $80,000 with a down payment of $12,000 at an annual interest rate of 9% for 15 years. Calculate the unpaid balance after 10 years of making payments. What would be the market value of the condominium in Exercise 21 afte..
Margaret Willis is the owner of Willis Concrete Company. Her company supplies poured concrete to residential and commercial construction sites throughout the San Diego area. That is the reason that her contracts with all vendors included clauses that..
The three-month interest rate is 3% for the dollar and is 5% for the British pound. The current spot rate is $1.5556/xi. A dealer sells xi 20,000,000 forward for dollars for delivery in three months at $1.5479/xi.. Analyze risk that the dealer is fac..
Assume the inflation rate in 2012 is 1.3 percent. If the nominal GDP grew 3.5 percent and nominal wages grew 2.6 percent, what are the approximate real growth rates of GDP and wages?
Assume that you have a balance of $8000 on your MasterCard and that you make no more charges. Assume that MasterCard charges 12% APR and that each month you make only the minimum payment of 5% of the balance. Find a formula for the balance B after t ..
A firm is considering the purchase of an asset whose risk is greater than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should
Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The ma..
You can find spot and futures prices for a variety of equity indexes on www.wsj.com (or in the Datastream database available in the library). Pick one and check whether it is fairly priced. You will need to do some detective work to find the dividend..
Which of the following will cause the value of a bond to increase, other things held the same?
A return of 15 percent might actually be worse than a return of 10 percent.
The common stock of Hillshire Farms has yielded 16.3 percent, 7.2 percent, 11.8 percent, -3.6 percent, and 9.7 percent over the past five years, respectively. What is the geometric average return?
One position expressed in the financial literature is that firms set their dividends as a residual after using income to support new investments. A. Explain what a residual policy implies (assuming that all distributions are in the form of dividends)..
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