What should the nominal rate of interest on ford bonds

Reference no: EM131487918

Question: (Interest rate determination) You're looking at some corporate bonds issued by Ford, and you are trying to determine what the nominal interest rate should be on them. You have determined that the real risk-free interest rate is 3.0%, and this rate is expected to continue on into the future without any change. In addition, inflation is expected to be constant over the future at a rate of 3.0%. The default-risk premium is also expected to remain constant at a rate of 1.5%, and the liquidity-risk premium is very small for Ford bonds, only about 0.02%. The maturity-risk premium is dependent on how many years the bond has to maturity. The maturity-risk premiums are as follows:

Given this information, what should the nominal rate of interest on Ford bonds maturing in 0-1 year, 1-2 years, 2-3 years, and 3-4 years be?

Reference no: EM131487918

Questions Cloud

What return on a one-year treasury bill can be expected : Real interest rates: approximation method) You have been asked to provide an approximation of the real interest rate considering following situation.

What is the default-risk premium on the corporate bonds : (Default risk premium) At present, 20-year Treasury bonds are yielding 5.1%, while some 20-year corporate bonds that you are interested in are yielding 9.1%.

What is the real risk-free interest rate : (Interest rate determination) If the 10-year Treasury bond rate is 4.9%, the inflation premium is 2.1%, and the maturity-risk premium on 10-year Treasury bonds.

Locate a current event that describes a search : Sam has been charged with robbery. He was arrested for robbing a clothing sales clerk after an informant notified the police.

What should the nominal rate of interest on ford bonds : (Interest rate determination) You're looking at some corporate bonds issued by Ford, and you are trying to determine what the nominal interest rate should.

How would your error affect breakeven sales : How would your error affect breakeven sales and operating income under the proposed sales commission plan? What could Barnhill have done differently?

Prepare a paper entitled microsoft and offshore accounts : Assignment: Offshore Accounts and Tax Benefits. Prepare a paper entitled Microsoft and Offshore Accounts and Right versus Good.

Discuss theory that explain term structure of interest rate : (Yield curve) Discuss the shape of the yield curve based on the following: Find any yield curve in the Internet.

Calculate depreciation expense per mile : In recent years, Avery Transportation purchased three used buses. Calculate depreciation expense per mile under units-of-activity method.

User Account

All Pages