Maturity risk premium on the six-year treasury security

Assignment Help Financial Management
Reference no: EM131021596

Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the rate on 3-year Treasury securities is 6.35 percent, and the 6-year Treasury rate is 6.60 percent. From discussions with your broker, you have determined that expected inflation premium is 2.55 percent next year, 2.55 percent in Year 2, and 2.90 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.40 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?

Reference no: EM131021596

Questions Cloud

What is the current ratio : Suppose Levi's Luxury Shop has cash of $8,745, inventory of $36,287, fixed assets of $14,204, accounts payable of $66,410, and accounts receivable of $20,033. What is the current ratio?
What role do primary financial markets play in our economy : What role do primary financial markets play in our economy? What role do secondary markets fill? Describe the relationship that exists between financial institutions and financial markets and suggest a method in which this relationship can run more s..
Assume that intel pays no dividends : Suppose that you sell short 200 shares of Intel, currently selling for $50 per share, and give your broker $6,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after..
Percentage increase in net worth of your brokerage account : Suppose that Intel currently is selling at $64 per share. You buy 500 shares using $20,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 7%. What is the percentage increase in the ne..
Maturity risk premium on the six-year treasury security : Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the rate on 3-year Treasury securities is 6.35 percent, and the 6-year Treasury rate is 6.60 percent. Further, you expect that real interest rates will be 3...
Discuss distinction between positive and normative analysis : According to an analysis by Katja Seim of the University of Pennsylvania and Joel Waldfogel of the University of Minnesota, if the state of Pennsylvania were to allow unlimited entry of private liquor stores, the number of stores would increase by..
What is the required return on the companys stock : Raffalovich, Inc., is expected to maintain a constant 6.15 percent growth rate in its dividends, indefinitely. Required: If the company has a dividend yield of 4.65 percent, what is the required return on the company’s stock?
How many positive factors does the given equation have : How many positive factors does the equation x+y+z =17 have? How many different arrangements are there for the word "number"?
Thinking about delaying the wedding : Upon hearing that you were thinking about delaying the wedding a year, your future spouse goes bonkers. You decide to offer an alternative, to get married as soon as the $25,000 wedding costs are saved and borrow to pay for the honeymoon ($10,000) wi..

Reviews

Write a Review

Financial Management Questions & Answers

  Dividends are expected to grow at a rate

Yang Corp. is growing quickly. Dividends are expected to grow at a rate of 31 percent for the next three years, with the growth rate falling off to a constant 6.6 percent thereafter.

  Operating activity on the statement of cash flows

Which of the following items would not be classified as an operating activity on the statement of cash flows?

  Shares outstanding-estimate price per share of common stock

ABC Waterhouse's free cash flow next year will be $250 million and it is widely expected to grow at a 5 percent annual rate indefinitely. The company's weighted average cost of capital is 11 percent, the market value of its liabilities is $2.5 billio..

  Firm reduced its net working capital investment

The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $5.5 million, and the 2015 balance sheet showed long-term debt of $5.7 million. The 2015 income statement showed an interest expense of $180,000. Suppose you also know ..

  Managers want to estimate common stock value

Berth Cargo Corporation is considering going public. Managers want to estimate common stock value. The firm’s weighted average cost of capital is 11%, and it has $1.5 million of debt at market value, and $400,000 of preferred stock also at market val..

  Issue of bonds-at what price would the bonds sell

Company X sold an issue of bonds with a 20-year maturity, a $1000 par value, an 8% coupon rate, and annual interest payments. 8 years after issue, the going rate of interest on comparable bonds rose to 10%. At what price would the bonds sell?

  Cyclical type of business-reflected in dividend policy

ACME is a very cyclical type of business which is reflected in its dividend policy. The firm pays a $2.00 a share dividend every other year. The last dividend was paid last year. Five years from now, the company is repurchasing all of the outstanding..

  Liquidation sale

Mathias has been the sole proprietor of a clothing store for many years. He intends to retire after holding a "liquidation sale". He wants to avoid ordinary income from the sale of the business inventory, so he shuts down the store for one month and ..

  Foundation will support an annual seminar

Beginning next year, a foundation will support an annual seminar on campus with the earnings of a $200,000 gift it received this year. It is felt that 6% interest will be realized for the first 10 years, but that plans should be made to anticipate an..

  Process costing differs from job order costing in way costs

Process costing differs from job order costing in the way costs are accounted for. Share your thoughts about the accounting differences in process costing versus job order costing, and explain how manufacturing costs are accounted for in process cost..

  Eileen ponders mutual funds

Eileen Mahurin is the director of a major charitable organization in Knoxville, Tennessee. A single mother of one young child, she earns what could best be described as a modest income. Because charitable organizations aren’t known for their generous..

  What is standard way to calculate companys cost of capital

What is the standard way to calculate a company’s cost of capital? And what important observations have been offered by finance theory when estimating a firm’s WACC?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd