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Problem - REAL RISK-FREE RATE - You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:
Inflation premium = 3.25%
Liquidity premium = 0.6%
Maturity risk premium = 1.85%
Default risk premium = 2.15%
On the basis of these data, what is the real risk-free rate of return?
Which of the following statements about the usefulness of derivatives in practice is least accurate?
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A 10-year U.S. Treasury bond with a face value of $10,000 pays a coupon of 6.5% every six months. The semi annually compounded interest rate is 5.0%. What is the present value of the bond?
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New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would be the cost of new equity?
Holding other factors constant, the interest rate risk of a coupon bond is higher when the bond's:
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