A bond quotes a rate of return of 9% and will pay $1,000 in one year...

A bond quotes a rate of return of 9% and will pay $1,000 in one year with a probability of 69% and $0 with a probability of 31%.

What is the time premium?

What is the default premium?

Solutions

Expert Solution

Calculation of time premium

$1000 - ( $1000 /109%)

$82.57

Calculation of default premium

$1000*69%=$690

$917.43 - $690

$227.43

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

What real rate of return is earned by a one-year investor in a bond that was purchased for $1,000

What real rate of return is earned by a one-year investor in a bond that was purchased for $1,000, has an 8 percent coupon, and was sold for $960 when the inflation rate was 7 percent?2.80 percent3.72 percent5.39 percent-1.89 percent

A twelve-year corporate bond has a coupon rate of 9%, a face value of $1,000, and...

A twelve-year corporate bond has a coupon rate of 9%, a face value of $1,000, and a yield to maturity of 11%. Assume annual interest payments. (i) (2 pts) What is the current price? (ii) (3 pts) What is the duration (Macaulay’s)? (iii) (2 pts) Compare this bond to a eight-year zero coupon bond. Which has more interest-rate risk (which bond price changes more given a 1 percentage point change in the interest rate)? (iv) (2 pts) Using duration, what...

Consider a bond (with par value = $1,000) paying a coupon rate of 9% per year...

Consider a bond (with par value = $1,000) paying a coupon rate of 9% per year semiannually when the market interest rate is only 5% per half-year. The bond has three years until maturity. a. Find the bond's price today and six months from now after the next coupon is paid. (Round your answers to 2 decimal places.) b. What is the total (six-month) rate of return on the bond? (Do not round intermediate calculations. Round your answer to the...

Consider a bond (with par value = $1,000) paying a coupon rate of 9% per year...

Consider a bond (with par value = $1,000) paying a coupon rate of 9% per year semiannually when the market interest rate is only 7% per half-year. The bond has three years until maturity. a. Find the bond's price today and six months from now after the next coupon is paid. (Round your answers to 2 decimal places.) b. What is the total (six-month) rate of return on the bond? (Do not round intermediate calculations. Round your answer to the...

A firm issues a 10-year, $1,000 par value bond. The required rate of return is 10%....

A firm issues a 10-year, $1,000 par value bond. The required rate of return is 10%. 1. What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value bond that sells for $878.00? Another bond that sells for $1,134.20? What does a bond selling at a discount or at a premium tell you about the relationship between rd and the bond’s coupon rate? 2.What are the total return, the current yield, and the capital gains yield...

An investor purchases one municipal bond and one corporate bond that pay rates of return of...

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. The investor is in the 15% tax bracket. Please calculate his after-tax rates of return on both the municipal bond and the corporate bond. Please enter your answer with TWO decimal points. Muni bond: % Corp bond: %

An investor purchases one municipal bond and one corporate bond that pay rates of return of...

An investor purchases one municipal bond and one corporate bond that pay rates of return of 6% and 7.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____. Multiple Choice 6.90% and 6.29% 6% and 7.4% 6% and 6.29% 5.10% and 7.4%

A $1,000 bond with annual coupon payments at 9% of par has an expected return of...

A $1,000 bond with annual coupon payments at 9% of par has an expected return of 11% over the life of the bond, compute the value of the bond at these times to maturity 12, 8, 5, 2 years ( and how do i enter this information into an online bond yield to maturity calculator)

Last year Janet purchased a $1,000 face value corporate bond with an 9% annual coupon rate...

Last year Janet purchased a $1,000 face value corporate bond with an 9% annual coupon rate and a 15-year maturity. At the time of the purchase, it had an expected yield to maturity of 10.4%. If Janet sold the bond today for $1,069.01, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

You are considering a 25-year, $1,000 par value bond. Its coupon rate is 9%, and interest...

You are considering a 25-year, $1,000 par value bond. Its coupon rate is 9%, and interest is paid semiannually. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. If you require an "effective" annual interest rate (not a nominal rate) of 9.3%, how much should you be willing to pay for the bond? Do not round intermediate steps. Round your answer to the nearest...

Subjects