The default risk premium on the corporate bonds

Assignment Help Business Economics

Reference no: EM131011429

A company's 5-year bonds are yielding 9.7% per year. Treasury bonds with the same maturity are yielding 6% per year, and the real risk-free rate (r*) is 2.6%. The average inflation premium is 3%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.6%, what is the default risk premium on the corporate bonds?

Reference no: EM131011429

Questions Cloud

What you think is a less risky industry : Find the WACC for a firm that is what you think is a risky industry and the WACC for a firm that is in what you think is a less risky industry. Compare them and comment on the possible reasons for the similarity or difference.

Reimburses losses on an actual cash-value basis : Lizzy Richardson’s home in New York City was recently gutted in a ?re. Her living and dining rooms were completely destroyed, and the damaged personal property had a replacement value of $35,000. The average age of the damaged personal property was 5..

The policy reimburses for actual cash value : Last year, Dylan and Crystal Evans bought a home with a dwelling replacement value of $350,000 and insured it (via an HO-5 policy) for $310,000. The policy reimburses for actual cash value and has a $500 deductible, standard limits for coverage C ite..

The default risk premium on the corporate bonds : A company's 5-year bonds are yielding 9.7% per year. Treasury bonds with the same maturity are yielding 6% per year, and the real risk-free rate (r*) is 2.6%. The average inflation premium is 3%, and the maturity risk premium is estimated to be 0.1(t..

Calculate the EAC for the old computer and the new computer : Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,260,000; the new one will cost, $1,520,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth ab..

Highest fixed costs that could be incurred-still break even : Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project...

What is the total amount of profit for your IBM investment : Three years ago, you purchased 192 shares of IBM stock for $101 a share. Today, you sold your IBM stock for $117 a share. For this problem, ignore commissions that would be charged to buy and sell your IBM shares and dividends you might have received..

Approximate dollar price for which you could sell your bond : Assume that three years ago, you purchased a corporate bond that pays 5.50 percent. The purchase price was $1,000. Also assume that three years after your bond investment, comparable bonds are paying 6.00 percent. What is the annual dollar amount of ..

User Account

All Pages