What is default risk premium on corporate bonds

Assignment Help Financial Management

Reference no: EM131869906

1. You are considering a 10-year, $1,000 par value bond. Its coupon rate is 11%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 10.9%, how much should you be willing to pay for the bond?

2. Edit question A company's 5-year bonds are yielding 7.35% per year. Treasury bonds with the same maturity are yielding 5.55% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 2.4%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.5%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

Reference no: EM131869906

Questions Cloud

Design a message about dealing with a complaint : To communicate information to support others to achieve work responsibilities, design a message about dealing with a complaint by just using visuals

How your ideas or solutions to a problem : Explain how your ideas or solutions to a problem are most likely to be acted upon in your workplace

The maturity risk premium is estimated : The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note?

Primary differences between the audit report : List at least three primary differences between the audit report for nonpublic entities and the one for public entities. Do not forget to note your source.

What is default risk premium on corporate bonds : where t = number of years to maturity. If the liquidity premium is 0.5%, what is the default risk premium on the corporate bonds?

Local governments are city and county organizations : Q1. Local governments are city and county organizations. Q2. Terrorism, war, riots, panic behavior, and mass shootings are all types of civil/conflict hazards.

What is the current level of inflation : Using the data from the Bureau of Labor Statistics, what is the current level of inflation? Are these high or low compared to the historical averages of the US.

Discuss the design of controls : Provide an example of a situation in which the "design of controls" may be effective but those controls do not operate "effectively".

How large would each annual payment be : If the loan amortized over 3 years, how large would each annual payment be? Could you afford those payments?

User Account

All Pages