What yield would predict for each of the two investment

Assignment Help Financial Accounting
Reference no: EM132630946

Problem A. Suppose you are considering two possible invvestment opportunities, a 12 year Treasury bond and a 7 year, A rated corporate bond. The current real risk free rate is 4%. Inflation is expected to 2% for the next two years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula MRP = 0.2%(t-1)%. The liquity premium for the corporate bond is estimated to be 0.3%. Finally, you may determine the default risk premium, given the company's bond rating, from the default risk premium table.W Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. What yield would you predict for each of these two investments? (IF who ever helps me can provide me with each formula).

                            Rate                    Corporate Bond Yield spread = DRP +LP

US treasury       0.83%                         ----------

AAA corporate    0.93                              0.1%

AA corporate      1.29                              0.46

A corporate        1.67                              0.84

Reference no: EM132630946

Questions Cloud

Analyze the data by applying maslow hierarchy of need : Analyze the data by applying Maslow's Hierarchy of Need? Why is this data significant? Create three nursing diagnoses for this patient.
What is foreign exchange arbitrage : Project upon the unavoidable absence of your Chief Finance Officer (CFO), state the important highlights that you need to note for the meeting?
What is the basic role of a finance manager : What is the basic role of a Finance Manager or Financial Management? List and describe five (5) sources of short term business finance
Community and business sectors recruited : How are community and business sectors recruited and involved in hurricane preparedness programs and activities?
What yield would predict for each of the two investment : Suppose you are considering two possible invvestment opportunities, a 12 year, What yield would you predict for each of these two investments?
Hurricane preparedness programs and activities : How are community and business sectors recruited and involved in hurricane preparedness programs and activities?
How much is reported in pure company income statement : The income tax rate is 35%. How much is reported in Pure Company's 2017 income statement under the caption "Discontinued Operations"?
Evaluate philosophy of public finance : Evaluate the philosophy of public finance. Compare and contrast governmental accounting with non-governmental accounting.
Which failure to record adjusting entry for salaries expense : Which failure to record an adjusting entry for salaries expense would? Cause stockholders' equity to be overstated./ Cause cash to be understated.

Reviews

Write a Review

Financial Accounting Questions & Answers

  Financial statement analysis and preparation

Financial Statement Analysis and Preparation

  Shareholder of a company

Describe the ways that a person can become a shareholder of a company. Why Wal-Mart would split its stock?

  Financial and accounting principles

An understanding of financial and accounting principles can be a valuable tool for managers. While not all managers will find themselves calculating financial ratios or preparing annual financial data.

  Prepare a statement of cash flow using the direct method

Prepare a Statement of Cash Flow using the Direct Method and Prepare the Operations section of the Statement of Cash Flow using the Indirect Method.

  Financial accounting assignment

This assignment has one case study and two question apart from case study. Questions related to document Liquidation question and Company financial statements question - Torquay Limited

  Prepare general journal entries for goela

Prepare general journal entries for Goela Ltd

  Principles of financial accounting

Prepare the journal entry to record the acquisition of the assets.

  Prepare general journal entries to record the transactions

Prepare general journal entries to record the transactions, assuming use of the periodic inventory system

  Global reporting initiative

Compare the view espoused by the economist Milton Friedman about the social responsibilities of business with the views express by Stigler.

  Explain the iasb conceptual frameworks

Explain the IASB Conceptual Framework's perspective of users and their decisions.

  Determine the company''s financial statements

T he focus of the report is to determine the extent to which you are comfortable relying on the financial statements as presented by management .

  Computation of free cash flow

Computation of Free Cash Flow

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