Liquidity premium and maturity risk premium

Assignment Help Financial Management

Reference no: EM131192454

1. Select an example scenario appropriate to the seminar’s target audience Write a general expression for the yield on a probable debt security (rd) and define these terms in regards to that hypothetical security: real risk-free rate of interest (r*), inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturity risk premium (MRP).

2. Define the nominal risk-free rate (rRF) and provide an example relevant to your target audience of a specific security that can be used as an estimate of rRF.

3. Describe interest rate risk and reinvestment rate risk and how these relate to the maturity risk premium. Based on reinvestment rate risk, provide an example on how a 1-year bond or a 10-year bond would be a better investment for a typical community as represented by those attending your seminar.

4. Select an example appropriate to your seminar target audience to explain the concepts of a) term structure and interest rates and b) yield curve.

5. Review corporate bankruptcy law. If a firm were to default on its bonds, describe how the company assets could be/would be liquidated. What is a likely outcome for bondholders? Select and describe an example scenario that applies to your seminar attendees’ organizations. Prepare this assignment according to the guidelines found in the APA Style Guide.

Reference no: EM131192454

Questions Cloud

What is the present value of such savings program : Assume that your savings account will return a constant 10%. You will deposit $1000 today and plan to perpetually increase the size of the deposit by 5% each year, forever. Immediately after making a deposit 10 years from now, how much will be in you..

What is the annual equivalent rate of interest : A bank investment is offering a rate of 6% every two years. What is the annual equivalent rate of interest? Suppose the price of a 2 year zero coupon bond with face value of 10,000 is equal to $9,000 today. What is the present value of receiving 200,..

Bond investor be indifferent between the two bonds : A bond investor is considering two 10 year maturity bonds both rated AAA: the municipal bond is yielding 1.55% and the corporate bond is yielding 2.65%. At what marginal tax rate would the bond investor be indifferent between the two bonds?

What is the money market yield : What role does the ABC system play in inventory control? What group of inventory items does the EOQ model focus on controlling? Describe the objective and cost trade-off addressed by the EOQ model. How is interest paid on a discount investment? What ..

Liquidity premium and maturity risk premium : Select an example scenario appropriate to the seminar’s target audience Write a general expression for the yield on a probable debt security (rd) and define these terms in regards to that hypothetical security: real risk-free rate of interest (r*), i..

Changing foreign currency exchange rates : What financial impact can changing foreign currency exchange rates have on a multi-national company? Do you think it is a wise business decision to hedge foreign currency risk? Explain your position.

Market capitalization rate : Company Z-prime’s earnings and dividends per share are expected to grow by 4% a year. Its growth will stop after year 4. In year 5 and afterward, it will pay out all earnings as dividends. Assume next year’s dividend is $8, the market capitalization ..

What is sum of market value of nwc and fixed assets : Klingon Widgets, Inc., purchased new cloaking machinery five years ago for $5 million. The machinery can be sold to the Romulans today for $4.1 million. Klingon’s current balance sheet shows net fixed assets of $2.8 million, current liabilities of $7..

How you plan to capitalize your corporation : Describe a business corporation that you might want to create. Indicate the specific provisions you would include into Articles of Incorporation including the number of directors in you corporation and how you plan to capitalize your corporation.

User Account

All Pages