A corporation is planning to sell its 90-day commercial paper to investors offering a 10.2 percent yield. If the liquidity premium is estimated to be 0.2 percent, and there is a 0.4 percent tax adjustment. Also, the three month real annualized rate is 5.6 percent and expected inflation is 1.1 percent. What is the appropriate default premium?
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- Assume the Liquidity Premium Theory of the Term Structure of Interest Rates holds. The WSJ quotes 0.25% annual yield on a one-year T-note and 0.5% annual yield on a two-year T-note. Suppose the annual yield on a one-year T-note is expected to stay at 0.25% over the next 2 years. What must be the liquidity premium on a two-year T-note?One-year Treasury bills currently earn 2.90 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.10 percent and that two years from now, 1-year Treasury bill rates will increase to 3.60 percent. The liquidity premium on 2-year securities is 0.05 percent and on 3-year securities is 0.15 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Consider a 1-year, 10% annual payment corporate bond priced at par value. If the recovery rate is 30%, what is the expected loss given default?
- A two-year Treasury bill offers a 5.1% yield to maturity. The market's concensus forecast is that one-year T-bills will offer 5.8% next year. What is the current yield on a 1-year T-bill if the expectations hypothesis holds? Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your answer to 2 DECIMAL PLACES.Suppose you work as a broker in an investment company, and there is an expectation that the market interest rate will be 0.031. based on this expectation you are required to calculate the market price for the following CD; Issue date: 1 January 2021 Maturity date:10 May 2021. The face value OMR 10000. Interest on CD: 5 percent.One-year Treasury bills currently earn 2.50 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 2.70 percent and that two years from now, 1-year Treasury bill rates will increase to 3.20 percent. The liquidity premium on 2-year securities is 0.05 percent and on 3-year securities is 0.15 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Current Rate _____.__%
- Assume that the Pure Expectations Theory of the term structure is correct. Also assume that the interest rate today on a 9-year security is 6.40%, while the interest rate today on a 15-year security is 8.00%. Finally assume that the interest rate on a 3-year security to be bought at Year 9 and held over Years 10, 11, and 12 is 6.80%. Given this information, determine the average annual return that investors today must expect that they will receive from investing in a 3-year security in 12 Years (that is, buying the security at Year 12 and holding it over Years 13, 14, and 15). O 13.00% O 12.50% 13.50% O 12.00% O 14.00%One-year Treasury bills currently earn 2.25 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 2.45 percent and that two years from now, 1-year Treasury bill rates will increase to 2.95 percent. The liquidity premium on 2-year securities is 0.05 percent and on 3-year securities is 0.15 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities?An investor buys a ($1000 FV) Treasury Strip security with 11 years to maturity at a yield of 5.1%. Two years later the yield to maturity on the strip is 4.0% and the investor decides to sell. What is the compounded annual rate of return on the investment over the investment horizon? For simplicity assume all yields in the question are quoted with annual compounding. Enter your answer as percent to two decimal places, but do not include the % sign.
- An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat at 10%.a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?b. What must be the face value and market value of that zero-coupon bond?Suppose that the yield curve shows that the one-year bond yield is 8 percent, the two-year yield is 7 percent, and the three-year yield is 7 percent. Assume that the risk premium on the one-year bond is zero, the risk premium on the two-year bond is 1 percent, and the risk premium on the three-year bond is 2 percent. a. What are the expected one-year interest rates next year and the following year? The expected one-year interest rate next year = The expected one-year interest rate the following year b. If the risk premiums were all zero, as in the expectations hypothesis, what would the slope of the yield curve be? The slope of the yield curve would be (Click to select) % %Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 2% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 10%. a. What will be your cash flow at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be your real return? c. What will be your nominal return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)