What is the inflation premium

Assignment Help Financial Management
Reference no: EM132363359

Question

Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds issued by a corporation. The bonds have no special covenants.

The Wall Street Journal reports that 1-year T-bills are currently earning 3.50 percent. Your broker has determined the following information about economic activity and the corporation bonds:

Real interest rate = 2.50%

Default risk premium = 1.75%

Liquidity risk premium = .70%

Maturity risk premium = 1.50%

What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?

Reference no: EM132363359

Questions Cloud

What is the current interest payment and par value : A 3.00 percent TIPS has an original reference CPI of 170.6. If the current CPI is 205.9, what is the current interest payment and par value of the TIPS?
What is the effect of the payment on the total amount : What is the effect of the payment on the total amount of the seller's (1) assets, (2) liabilities, and (3) stockholders equity?
Zero-padding and filtering effects on the signal spectrum : Discuss the zero-padding and filtering effects on the signal spectrum and Use the cubic spline interpolation in MATLAB to interpolate the signal "y"
What should the current rate be on two-year treasury : You expect that one year from now, one-year Treasury bill rates will increase to 5.40 percent. The liquidity premium on two-year securities is .160 percent.
What is the inflation premium : Determinants of Interest Rate for Individual Securities You are considering an investment in 30-year bonds issued by a corporation.
Describe the five key principles of gaap : What is the importance of each principle? How does each principle affect the presentation and inclusion of accounting information?
What is the present value of the same annuity due : Present Value of an Annuity Due If the present value of an ordinary, 5-year annuity is $6,500 and interest rates are 9 percent.
Describe the elements of effective programming style : ISY1003 Foundations of Programming Assignment - Decision Structures and Boolean Logic, Repetition, Australian Institute of Higher Education, Australia
What is the amount of the net income for the month : What is the amount of the net increase in stockholders' equity during the month? What is the amount of the net income for the month?

Reviews

Write a Review

Financial Management Questions & Answers

  What is acort equity cost of capital

New capital expenditures are expected to equal depreciation and equal $10 million per year, What is Acort's equity cost of capital?

  Blue water systems is analyzing project with cash flows

Blue Water Systems is analyzing a project with the following cash flows. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not?

  Stock is expected to pay dividend

A stock is expected to pay a dividend of $1.75 the end of the year (that is, D1 = $1.75), and it should continue to grow at a constant rate of 3% a year. If its required return is 13%, what is the stock's expected price 5 years from today? Round your..

  Determine the cost of each capital component

KEI's expected net income this year is $34,285.72; its established dividend payout ratio is 40%. Determine cost of each capital component. Calculate the WACC.

  Projects for both firms have an estimated rate of return

Northern Boat Mfg., Inc. has a weighted average cost of capital (WACC) of 16.8 percent, given the firm’s current boat-making operations. Home Builders, Inc. has a WACC of 14.4 percent, given that the firm builds new, single-family homes. Both firms a..

  Firms required rates of return for both of equity components

Calculate a firm's required rates of return for both of its equity components: Its common stock sells for $50.00 per share and will pay a $6.00 dividend which is expected to grow at a constant 5% rate. Its preferred stock sells for $22.50 per share a..

  Present value for the following series of future cash flows

Find the net present value for the following series of future cash flows, assuming the company's cost of capital is 6.5%. The initial outlay is $450,200.

  Estimates of the initial capital requirements

the company has come up with the following estimates of the initial capital requirements and NPVs for the projects

  What rate of return would she have earned for the past year

What rate of return would she have earned for the past year?

  Annually how much money will you have in 12 years

If you deposit $584 into an account paying 17.00% annual interest compounded quarterly, how many years till there is $78,705 in the account?

  What would be the marginal cost of each dollar

What would be the marginal cost of each dollar of machinery investment in the following situations? -Firms are allowed to expense the machine.

  Draw payoff diagrams for each of the given portfolios

Draw payoff diagrams for each of the portfolios below (X strike price).- Buy a share of stock and short a call, with X = $35.

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