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What the price of xyz bond today

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Reference no: EM132796622

1) Suppose that you invest $7,000 today at an annual rate of 9%. Assuming that the expected annual rate of inflation is 4%, what will be your increase in purchasing power in percentage terms? Enter your answer as a percent without the "%." Round your final answer to two decimals.

2) Given the following term structure of risk-free interest rates today, what would you expect the interest rate to be on a one year bond four years in the future? Enter your answer as a percent without the "%." Round your final answer to two decimals.

Maturity in Years Interest Rate

1 3.00%
2 3.50%
3 3.75%
4 4.00%
5 4.00%

3) Suppose that you have collected the average yield-to-maturity of corporate bonds with 10 years to maturity across various credit ratings (see below). Assuming that current 10 year U.S. treasury bonds yield 3%, what is the credit spread (i.e., risk premium) for DDD rated bonds? Enter your answer as a percent without the % sign. Round your final answer to two decimals.

Credit Ratings Yield to Maturity

AAA 3.50%
BBB 4.00%
CCC 5.00%
DDD 6.00%

4) XYZ Corp. has a bond issue with a $1,000 par value and a 12% coupon rate. It pays interest annually and has 25 years remaining to maturity. It just made a coupon payment (i.e., it has 25 coupon payments left to make). If the yield to maturity of bonds with similar risk and maturity is 9%. What the price of XYZ's bond today? Round your final answer to two decimals.

Reference no: EM132796622

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