A company's 5-year bonds are yielding 9% per year. Treasury bonds with the same maturity are yielding 5.1% per year, and the real risk-free rate (r*) is 2.35%. The average inflation premium is 2.35%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places
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A company's 5-year bonds are yielding 9% per year. Treasury bonds with the same maturity are yielding 5.1% per year, and the real risk-free rate (r*) is 2.35%. The average inflation premium is 2.35%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
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- A company's 5-year bonds are yielding 8% per year. Treasury bonds with the same maturity are yielding 4.9% per year, and the real risk-free rate (r*) is 2.45%. The average inflation premium is 2.05%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.8%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %A company's 5-year bonds are yielding 8.25% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.7%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.A company's 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk free rate (r*) is 2.3%. The average inflation premuim is 2.5% and the maturity risk premium is estimated to be 0.1X(t-1) % where t= the number of maturity. If the iquidity premium is 1% what is the default risk premium on the corporate bonds.? Please show formula and calculation. Do it in manual computation not in spreadsheet.
- A company’s 5-year bonds are yielding 7% per year. Treasurybonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is2.75%. The average inflation premium is 2.05%, and the maturity risk premium is estimatedto be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is0.7%, what is the default risk premium on the corporate bonds?The risk-free rate on long-term Treasury bonds is 6.04%. Assume thatthe market risk premium is 5%. What is the required return on the market? Now use the SML equation to calculate the two companies’ requiredreturns.Suppose the real risk-free rate is 2.80%, the average future inflation rate is 2.30%, a maturity premium of 0.25% per year to maturity applies, i.e., MRP = 0.25%(t), where t is the number of years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 2.50% applies to A-rated corporate bonds. What is the difference in the yields on a 5-year A-rated corporate bond and on a 10-year Treasury bond? Here we assume that the pure expectations theory is NOT valid, and disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average. a. 4.25 p.p. b. 2.25 p.p. c. 4.19 p.p. d. 3.00 p.p. e. 1.75 p.p. Please explain process and show calculations
- Suppose the real risk-free rate of interest is r=4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next two years and 3.90% per year for the next three years. The maturity risk premium is 0.1 x (t-1) %, where t is number of years to maturity, a liquidity premium is 0.45%, and the default risk premium for a corporate bond is 1.40%, The average inflation during the first 4 years is What is the yield on a 4-year Treasury bond? O 6.75% O 8.90% O 4.30% O 7.05% What is the yield on a 4-year BBB-rated bond? O 7.50% O 7.05 % O 8.45% 8.90% If the yield on a 5-year Treasury bond is 7.38% and the yield on a 6-year Treasury bond is 7.83%, the expected inflation in 6 years is (Hint: Do not round intermediate calculations.)Suppose the real risk-free rate is 2.5%, the average future inflation rate is 2.3%, a maturity premium of 0.07% per year to maturity applies, i.e., MRP = 0.07% (t), where t is the years to maturity. Suppose also that a liquidity premium of 1% and a default risk premium of 0.7% applies to A-rated corporate bonds. How much higher would the rate of return be on a 7-year A-rated corporate bond than on a 5-year Treasury bond. Here we assume that the pure expectations theory is NOT valid. O 1.84% O 1.64% O 1.44% O 1.24% 1.04%Suppose the real risk - free rate is 3.50 %, the average future inflation rate is 2.50%, a maturity premium of 0.20% per year to maturity applies, i.e., MRP = 0.20% (t), where t is the number of years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 2.70% applies to A-rated corporate bonds. What is the difference in the yields on a 5-year A - rated corporate bond and on a 10-year Treasury bond? Here we assume that the pure expectations theory is NOT valid, and disregard any cross - product terms, i.e., if averaging is required, use the arithmetic average. a. 4.90 p. p. b. 3.20 p.p. c. 4.11 p.p. d. 2.70 p.p. e. 2.20 p.p.
- The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next two years and 3% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Global Satellite Corp.’s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Global Satellite Corp. issues 15-year, AA-rated bonds. What is the yield on one of these bonds?The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next four years and 3% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 1)%, where t is the security's maturity. The liquidity premium (LP) on all Gauge Imports Inc.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury AAA 0.60% AA. 0.80% 1.05% A. ВB 1.45% Gauge Imports Inc. issues 12-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 5.25% 8.58% 8.03% 7.48% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? A AAA-rated bond has less default risk than a BB-rated bond. The yield on a AAA-rated bond will be higher than the…The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 3% per year for each of the next two years and 2% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Moq Computer Corp.’s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Moq Computer Corp. issues 15-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 7.68% 6.28% 5.55% 7.13% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? The yield on a AAA-rated bond will be lower than…