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: DRP = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described. What is the yield on this 5-year corporate bond? Round your answer to two decimal places.

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jeff jeffy answered 1 year ago

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 4.7% 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 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

A 30-yr Treasury bond with a coupon yield of 10% and a 5-yr Treasury bond with...

A 30-yr Treasury bond with a coupon yield of 10% and a 5-yr Treasury bond with a coupon yield of 3% have different yields because: A. Inflation is expected to diminish the value of money B. The yield curve is inverted C. Lenders demand compensation for the longer time frame D. The yield curve is flat E. Both A & C

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. %

•Note the following yields: 10 year treasury 2.37%, 10 year AAA rated bond credit spread 0.90%...

•Note the following yields: 10 year treasury 2.37%, 10 year AAA rated bond credit spread 0.90% (90 basis points), BBB rated bond credit spread 1.20% (120 basis points). What is the price of a 10 year bond, $1000 par value, with a coupon rate of 6% that pays interest semi-annually and has risk similar to a BBB rated corporate bond? •Suppose Company X has earnings next year of $1.00 and grows earnings by 40% for 2 years and will grow...

a. A 10-year 5% coupon bond has a yield of 8% and a duration of 7.85...

a. A 10-year 5% coupon bond has a yield of 8% and a duration of 7.85 years. If the bond yield increases by 60 basis points, what is the percentage change in the bond price? b. Alpha Insurance Company is obligated to make payments of $2 million, $3 million, and $4 million at the end of the next three years, respectively. The market interest rate is 8% per annum. i. Determine the duration of the company’s payment obligations. ii. Suppose...

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