You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: • Inflation premium = 3.50% Liquidity premium = 0.3% . Maturity risk premium = 2.30% Default risk premium 2.00% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places. %

You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: • Inflation premium = 3.50% Liquidity premium = 0.3% . Maturity risk premium = 2.30% Default risk premium 2.00% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places. %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question 3: Answer the following Two questions: (CLO-3) I. You would like to purchase a Treasury bill that has a $10,000 face value and is 68 days from maturity. The current price of the Treasury bill is $9,875. Caleulate the discount yield on this Treasury bill. Answer 2. a) What are the differences among T-bills, T-Note, and T-bonds? Answer:
Suppose that discount bond prices are as follows: 2 3 4 P. 0.9525 0.899 0.838 0.760 0.05 0.065 0.054 0.070 A customer would like to have a forward contract to borrow $20M two years from now for one vear. Can you (a bank) quote a rate for this forwardloan? Question 15 Your investment account earned 10.8% last year, inflation was 6.0% for last year. What was the real return on your account last year?
Q.8 Maharshi is attempting to find the nominal rate of interest for each of two securities A and B issued by different firms at the same point in time. He has gathered the following data: Characteristics Secuity A 3 Years Security B 15 Years Time to Maturity Inflation expectation premium 9% 7% Risk Premium For: Liquidity Risk Default Risk 1% 1% 1% 2% Maturity Risk Other Risk 0.50% 1.50% 0.50% 1.50% a. If the real rate of interest is 2%, find the risk free rate of interest applicable to each security. b. Find the total risk premium attributable to each securitys. c. Calculate the nominal rate of interest for each security?
1. Problem 6.08 (Expectations Theory) eBook Interest rates on 4-year Treasury securities are currently 5.1%, while 6-year Treasury securities yield 7.85%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. % 2. Problem 6.09 (Expected Interest Rate) eBook The real risk-free rate is 3.05%. Inflation is expected to be 4.05% this year, 4.15% next year, and 2.4% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round intermediate calculations. Round your answer to two decimal places. % 3. Problem 6.10 (Inflation) eBook Due to a recession, expected inflation this year is only 3.75%. However, the…
Analysis and Application of Knowledge Rossiana Marie, Inc. lists a bond as Ross 9s34, and shows the price as selling for 88.875% of its face value. If your required return rate is 10%. would you buy one of these bonds in 2021? * 5 points Your answer Upload Solution: Rossiana Marie, Inc. lists a bond as Ross 9534, and shows 15 points the price as selling for 88.875% of its face value. If your required return rate is 10%, would you buy one of these bonds in 2021? 1 Add file Intal Corporation bonds have a coupon of 14%. pay interest semiannually. Spoints and mature in 7 years. Your required rate of return for such an investment is 10% annually. How much should you pay for a PHP1.000 Intal Corporation bond? Your answer Upload Solution: Intal Corporation bonds have a coupon of 14%. pay 10 points interest semiannually, and mature in 7 years. Your required rate of return for such an investment is 10% annually. How much should you pay for a PHP1.000 Intal Corporation bond?* 1 Add file
1After reading the fine print in your credit card agreement, you find that the "low" interest rate is actually an 17.05% APR, or 1.4208% per month. What is the effective annual rate? a. 18.45% b. 19.41% c. 18.82% d. 19.56% 2A zero-coupon bond is a bond that pay no interest payment. You buy the bond at a discount from the face value ($1000) and are paid the face amount when the bond matures. A zero-coupon bond that will pay $1,000 in 10 years is selling today for $422.41. What interest rate does the bond offer? a. 7% b. 10% c. 9% d. 8% 3How long must one wait (to the nearest year) for an initial investment of $3,000 to triple in value if the investment earns 6.5% compounded annually? a. 22.01 years b. 9.81 years c. 17.45 years d. 25.00 years
Question 3: Answer the following Twa questions: I. You would like to purchase a Treasury bill that has a $10,000 face value and is 68 days from maturity. The current price of the Treasury bill is $9,875. C (CLO-3) 2. a) What are the differences among T-bills, T-Note, and T-bonds? Answer:
BOND PRICING #2 for Borrowing Money Inc Borrowing Money Inc (BMI) issues a bond on January 1, 2021 with a face value of $400,00O. The bond has an 7 year maturity date and requires SEMI ANNUAL interest payments. The bond's stated interest rate is 3% and the current market interest rate is 2%. Hint : remember to set your expectations PV tables will be needed. Do not round your PVIF, but you may round answers to whole dollars. Required : Prepare the journal entry (in proper form) at issuance of this bond for BMI. Include your journal for grading on your PDF upload. To get a preliminary idea of how you did you may enter your calculated amount for cash received at issuance Bond Pricing #2, cotinued Regarding the bond issued by BMI above Prepare (in good form) the Semi Annual journal entry needed to be recorded by BMI for the cash payment required. Upload your journal and calculations on your PDF. What is the ANNUAL interest expense related to this bond?
Can you please walk me through this? Problem 6-11 DEFAULT RISK PREMIUM 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 premium is 2 5%; 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 1%, what is the default risk premium on the corporate bonds?
Q.22 You are considering an investment in 30 year bond issued by Toy Company. The bonds have no special covenants and the 1 yr T bills are currently earning 5.25% The following information is available: Real risk free rate = 2.25% Default Risk Premium = 1.25% Liquidity risk premium = 0.50% Maturity Risk Premium = 2.00% What is the inflation premium?
Q23 You are considering an investment in 30 year bond issued by Toy Company. The bonds have no special covenants and the 1 yr T bills are currently earning 5.75% The following information is available: Real risk free rate = 2.5% Default Risk Premium = 1.5% Liquidity risk premium = 0.50% Maturity Risk Premium = 2.00% What is the fair interestrate for the toy company bonds?
H Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 4.95% yield. A 10-year Treasury bond yields 6.75%, and a 10-year corporate bond yields 9.85%. The market expects that inflation will average 3.15% over the next 10 years (IP10 = 3.15%). 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. 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. Open spreadsheet What is the yield on this 5-year corporate bond? Round your answer to two decimal places. % Check My Work Reset Problem

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