Suppose currently 10-year Treasury bond yields 1.2% and 10-year municipal bond offers 0.8% yield. Also, your...

Suppose currently 10-year Treasury bond yields 1.2% and 10-year municipal bond offers 0.8% yield. Also, your federal income tax rate is 40% and state income tax rate is 14%. Calculate the risk premium (spread) of this municipal bond.

Show calc and steps

Expert Solution

risk premium (spread) = 10-year municipal bond yield - 10-year Treasury bond yield = 0.8% - 1.2% = -0.4%

risk premium (spread) of this municipal bond is -0.4%.

jeff jeffy answered 2 years ago

Suppose currently 10-year Treasury note offers 2.8% yield and the average yield on investment grade 10-year...

Suppose currently 10-year Treasury note offers 2.8% yield and the average yield on investment grade 10-year corporate bonds is 4.4%. Calculate the risk spread. Predict what will happen to the yields of corporate and treasury bonds as well as the risk spread if the federal government guarantees today that it will pay to bondholders if the corporations go bankrupt in the future.

A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 7%, and a...

A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 7%, and a 10-year corporate bond yields 8.5%. The market expects that inflation will average 3% over the next 10 years (IP10 = 3%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...

A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.95%, and a...

A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.95%, and a 10-year corporate bond yields 9%. The market expects that inflation will average 2.55% over the next 10 years (IP10 = 2.55%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...

A 5-year Treasury bond has a 4.7% yield. A 10-year Treasury bond yields 6.15%, and a...

A 5-year Treasury bond has a 4.7% yield. A 10-year Treasury bond yields 6.15%, and a 10-year corporate bond yields 8.05%. The market expects that inflation will average 2.25% over the next 10 years (IP10 = 2.25%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...

A 5-year Treasury bond has a 4.75% yield. A 10-year Treasury bond yields 6.05%, and a...

A 5-year Treasury bond has a 4.75% yield. A 10-year Treasury bond yields 6.05%, and a 10-year corporate bond yields 9.45%. The market expects that inflation will average 2.25% over the next 10 years (IP10 = 2.25%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:...

Suppose a municipal bond offers a yield to maturity of 5% and a same maturity corporate...

Suppose a municipal bond offers a yield to maturity of 5% and a same maturity corporate bond offers a 4% yield. For which values of the marginal tax rate an investor would prefer to buy the corporate bond? A. The investor would prefer to buy the corporate bond if she faces a marginal tax rate greater than 40%. B. The investor would prefer to buy the corporate bond if she faces a marginal tax rate lower than 20%. C. The...

Debt issued by Drumpt corporation currently yields 11%. A municipal bond of equal risk currently yields...

Debt issued by Drumpt corporation currently yields 11%. A municipal bond of equal risk currently yields 6%. At what marginal tax rate would an investor be indifferent between the two bonds? Please input the answer in decimal format.

A Treasury bond that matures in 10 years has a yield of 4.25%. A 10-year corporate...

A Treasury bond that matures in 10 years has a yield of 4.25%. A 10-year corporate bond has a yield of 9.75%. Assume that the liquidity premium on the corporate bond is 0.55%. What is the default risk premium on the corporate bond? Round your answer to two decimal places. %

A Treasury bond that matures in 10 years has a yield of 4.75%. A 10-year corporate...

A Treasury bond that matures in 10 years has a yield of 4.75%. A 10-year corporate bond has a yield of 7.00%. Assume that the liquidity premium on the corporate bond is 0.35%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.

A Treasury bond that matures in 10 years has a yield of 4.00%. A 10-year corporate...

A Treasury bond that matures in 10 years has a yield of 4.00%. A 10-year corporate bond has a yield of 8.25%. Assume that the liquidity premium on the corporate bond is 0.70%. What is the default risk premium on the corporate bond? Round your answer to two decimal places. %

Question