Question
In: Finance
A corporate bond has a nominal interest rate of 13%. The bond isn’t very liquid, and...
A corporate bond has a nominal interest rate of 13%. The bond
isn’t very liquid, and thus has a 2%
liquidity premium. The bond is rated B, and therefore has a
default risk premium of 2.5%. The bond is
also due in 20 years, which results in a maturity risk premium
of 1.5%.. Open to all
(a) compute the nominal interest rate on a long-term Treasury
bond _________
(b) what is the real rate of return on the Treasury bond if
the market rate included a 2.5% inflation premium? __________
Solutions
Expert Solution
| a] | Nominal interest rate on a long term treasury bond = 13%-2%-2.5%1.5% = | 7.00% |
| b] | Real rate of return on the treasury bond = 7.00%-2.5% = | 4.50% |
jeff jeffy answered 2 years agoRelated Solutions
The nominal exchange rate is the nominal interest rate in one country divided by the nominal interest...
The nominal exchange rate is the nominal interest rate in one country divided by the nominal interest rate in the other country. the ratio of a foreign country's interest rate to the domestic interest rate. rate at which a person can trade the currency of one country for another. the real exchange rate minus the inflation rate.
A corporate bond has a face value of $1 000, a coupon rate of interest of...
A corporate bond has a face value of $1 000, a coupon rate of
interest of 10.5% per annum, payable semi-annually, and 20 years
remaining to maturity. The market interest rate for bonds of
similar risk and maturity is currently 8.5% per annum.
Required:
i. What is the coupon payment of the bond? (1 mark)
ii. What is the present value of the bond?
iii. If the coupon payment is payable annual (based on the same
information), what is the...
A corporate bond has a face value of $1 000, a coupon rate of interest of...
A corporate bond has a face value of $1 000, a coupon rate of
interest of 10.5% per annum, payable semi-annually, and 20 years
remaining to maturity. The market interest rate for bonds of
similar risk and maturity is currently 8.5% per annum.
Required:
i. What is the coupon payment of the bond? (1 mark)
ii. What is the present value of the bond?
iii. If the coupon payment is payable annual (based on the same
information), what is the...
A corporate bond has a face value of $10,000, a coupon rate of interest of 8.25%...
A corporate bond has a face value of $10,000, a coupon rate of
interest of 8.25% per annum, payable semi-annually, and six and a
half years remaining to maturity. The market interest rate for
bonds of similar risk and maturity is currently 9.5% per annum,
what is the present value of the bond?
Define the nominal interest rate. How is the nominal interest related to the real interest rate?...
Define the nominal interest rate. How is the nominal interest
related to the real interest rate? Why can we think of 1+ rt ,
where rt is the real interest rate, as the relative price of
consumption today in terms of consumption in the future?
nominal interest rate
nominal interest rate
At issuance, the yield or interest rate on a corporate bond security is comprised of ......
At issuance, the yield or interest rate on a corporate bond
security is comprised of ...
A
the quoted risk-free rate of return e.g., the Treasury Note
rate.
B
the risk premium plus the risk-free rate ( e.g., the Treasury
note rate).
C
the interest rate or rate of return in excess of the risk-free
rate of return
D
the risk-free rate of return less the expected rate of
inflation.
Simon recently received a credit card with an 13% nominal interest rate. With the card, he...
Simon recently received a credit card with an 13% nominal
interest rate. With the card, he purchased an Apple iPhone 5 for
$460. The minimum payment on the card is only $20 per month.
If Simon makes the minimum monthly payment and makes no other
charges, how many months will it be before he pays off the card? Do
not round intermediate calculations. Round your answer to the
nearest month.
month(s)
If Simon makes monthly payments of $60, how many...
37. Simon recently received a credit card with a 13% nominal interest rate. With the card,...
37. Simon recently received a credit card with a 13% nominal
interest rate. With the card, he purchased an Apple iPhone 7 for
$430.00. The minimum payment on the card is only $20 per month.
If Simon makes the minimum monthly payment and makes no other
charges, how many months will it be before he pays off the card? Do
not round intermediate calculations. Round your answer to the
nearest whole number. How many month(s)? ____________
If Simon makes monthly...
1) A 10-year corporate bond has a coupon rate of 6% with annual payments. If interest...
1) A 10-year corporate bond has a coupon rate of 6% with annual
payments. If interest rates rise to 8% on similar bonds, then what
is the value of the bond in the marketplace?
2) A 10-year corporate bond has a coupon rate of 6% with
quarterly payments. If interest rates rise to 8% on similar bonds,
then what is the value of the bond in the marketplace?
3) A 100-year corporate bond has a coupon rate of 6% with...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 1) The 3rd bright fringe of a double slit interference pattern is 30.0 cm above the...
- A solar cell generates a potential difference of 0.320 V when a 445.0 ? resistor is...
- A ceiling fan consists of a small cylindrical disk with 5 thin rods coming from the...
- You measure the following quantities as A = 1.0 m ± 0.2 m, B = 2.0...
- Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for...
- When the electricity goes out on your campus, a backup source powers the servers that handle...
- I am having trouble with my assignment and getting compile errors on the following code. The...
ADVERTISEMENT