The maturity risk premium is zero

Assignment Help Financial Management

Reference no: EM131043537

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 7.55 percent, on 20-year Treasury bonds is 8.15 percent, and on a 20-year corporate bond issued by MHM Corp. is 9.35 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on a 10-year corporate bond issued by MHM Corp. are the same as those on the 20-year corporate bond, calculate the current rate on MHM Corp.’s 10-year corporate bond. (Round your answer to 2 decimal places.)

Reference no: EM131043537

Questions Cloud

Using the dividend capitalization model approach : The following financial information is available on Rawls Manufacturing Company: Rawls can issue new common stock to net the company $44 per share. Determine the cost of internal equity capital using the dividend capitalization model approach. (compu..

Using the liquidity premium theory : Based on economists’ forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 1.30% E(2r1) = 2.45% L2 = 0.05% E(3r1) = 2.55% L3 = 0.10% E(4r1) = 2.85% L4 = 0.12% Using the l..

Wall street journal reports that the current rate : The Wall Street Journal reports that the current rate on 9-year Treasury bonds is 5.90 percent, the rate on 16-year Treasury bonds is 6.30 percent, and the rate on a 16-year corporate bond issued by MHM Corp. is 7.45 percent. If the default risk prem..

Total expected budget to total actual results or performance : You are the administrator of a community hospital that provides inpatient and outpatient services. Your budget anticipates 30,000 inpatient days this year at $650 revenue per day. Compare your TOTAL expected budget to TOTAL actual results or performa..

The maturity risk premium is zero : The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 7.55 percent, on 20-year Treasury bonds is 8.15 percent, and on a 20-year corporate bond issued by MHM Corp. is 9.35 percent. Assume that the maturity risk premium is ..

Daily risk assessments on the amount : Suppose you decide to base your daily risk assessments on the amount you stand a 1% chance of losing daily, rather than 5%. Assuming the expected return is zero and given a standard deviation estimate σX, provides a formula for evaluation 1% value at..

The firm is expected to have cash flows : Suppose you are evaluating the following investment opportunity. The firm is expected to have cash flows of $100 starting one year from now and they are expected to grow by 10% each of the next 4 years. Every year following year five the cash flows w..

Annually compounded lump-sum investment with interest rate : You have your choice of two investment accounts. Investment A is a 9-year annuity that features end-of-month $1,780 payments and has an interest rate of 9 percent compounded monthly. Investment B is an annually compounded lump-sum investment with an ..

Calculate the liquidity risk premium : Tom and Sue’s Flowers, Inc.’s, 10-year bonds are currently yielding a return of 8.55 percent. The expected inflation premium is 2.55 percent annually and the real risk-free rate is expected to be 3.55 percent annually over the next 10 years. Calculat..

User Account

All Pages