What rate of interest should the corporate bond pay

Assignment Help Financial Management

Reference no: EM13923922

You are considering an investment in a U.S. corporate bond but you are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 2.0%; the maturity risk premium is 1.5%; and, the default risk premium for AAA rated corporate bonds is 3%. What rate of interest should the U.S. corporate bond pay?

Reference no: EM13923922

Questions Cloud

What must the beta of this stock be : A stock has an expected return of 12.2 percent, the risk-free rate is 6 percent, and the market risk premium is 10 percent. What must the beta of this stock be?

Ecosystems on the earth taken together : Your mouth, an alpine valley or a swamp are all examples of ecosystems. All ecosystems on the earth taken together are called

What is the initial investment in the product : Revenues generated by a new fad product are forecast as follows: Year Revenues 1 $52,000 2 30,000 3 20,000 4 10,000 Thereafter 0 Expenses are expected to be 50% of revenues, and working capital required in each year is expected to be 30% of revenues ..

Do correct for european commission to restrict mergers : Do you think it is correct for the European Commission to restrict mergers between American companies that do business in Europe?

What rate of interest should the corporate bond pay : You are considering an investment in a U.S. corporate bond but you are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 2.0%; the maturity risk premium is 1.5%; and, th..

Cell theory most directly violated by slime molds : Biologists have discovered living things that defy (do not agree with) "Cell Theory". Which aspect of the cell theory is most directly violated by slime molds?

What is the companys expected growth rate : WACC and Cost of Common Equity Kahn Inc. has a target capital structure of 65% common equity and 35% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 16%, a before-tax cost of debt of 8%, and a tax rate of 40%. W..

Estimate a bernoulli naive bayes classifer : Estimate a Bernoulli Naive Bayes classifer and apply the classifier to the test document - You are asked to perform group average hierarchical clustering on this dataset.

What is the after-tax cash flow from the sale of equipment : Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. What is the after-tax cash flow fro..

User Account

All Pages