he real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 3% per year for each of the next four years and 2% thereafter.   The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Dare Satellite Corp.’s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):   Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45%   1. Dare Satellite Corp. issues 12-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average.   A. 6.98%   B. 5.75%   C. 8.08%   D. 7.03%     2. Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?   A. An AAA-rated bond has less default risk than a BB-rated bond.   B. The yield on an AAA-rated bond will be higher than the yield on a BB-rated bond.

A corporation’s 10-year bonds are currently yielding a return of 6.05 percent. The expected inflation premium is 1.00 percent annually and the real risk-free rate is expected to be 2.10 percent annually over the next ten years. The liquidity risk premium on the bonds is 0.25 percent. The maturity risk premium is 0.10 percent on 2-year securities and increases by 0.05 percent for each additional year to maturity. Calculate the default risk premium on the 10-year bonds. How would an increase in liquidity affect the nominal interest rate?

The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next two years and 3% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Smith and Carter Inc.’s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45%   Smith and Carter Inc. issues 10-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 7.35%   7.70%   8.25%   5.05%     Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? The yield on a AAA-rated bond will be higher…

A company's 5-year bonds are yielding 8% per year. Treasury bonds with the same maturity are yielding 4.9% per year, and the real risk-free rate (r*) is 2.45%. The average inflation premium is 2.05%, 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 0.8%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %

The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of the face value): a. Compute the yield to maturity for each bond. b. Plot the zero-coupon yield curve (for the first five years). c. Is the yield curve upward sloping, downward sloping, or flat? a. Compute the yield to maturity for each bond. The yield on the 1-year bond is 3.92 %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) Price (per $100 face value) 1 $95.51 2 3 $91.10 $86.55 $81.69 $76.45 Print Donday

A Treasury bond that matures in 10 years has a yield of 4.25%. A 10-year corporate bond has a yield of 9.00%. 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.

Suppose Home Depot issues 30-year bonds on which it pays a 4.00% (nominal) interest rate. Further, suppose that both Home Depot and the purchasers of its bonds anticipate inflation will average 2.00% during the life of the loan. Now suppose the inflation rate after the loan is made (i.e. after the bond is purchased) is actually 1.00% per annum. It follows that the actual real rate of interest is and, ceteris paribus, are (is) better off than anticipated as a result of the difference between the anticipated and the actual rate of inflation. Select one: a. 2.00%, Bondholders b. 2.00%, Home Depot O c. 3.00%, Bondholders d. 3.00%, Home Depot

A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 5.8% per year, and the real risk-free rate (r*) is 2.85%. The average inflation premium is 2.55%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.4%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

Drongo Corporation's 3-year bonds currently yield 6.3 percent and have an inflation premium of 3.3%. The real risk-free rate of interest, r*, is 1.5 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1% (t - 1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 1.3 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 3 percent for years 4, 5, and 6, what is the yield on a 6-year bond for Drongo Corporation? ○ 6.05% 6.45% 6.25% 5.85% 5.65%

Drongo Corporation's 4-year bonds currently yield 7.7 percent and have an inflation premium of 3.7%. The real risk-free rate of interest, r*, is 2.6 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1% (t-1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 1.1 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 4 percent for years 5 and 6, what is the yield on a 6-year bond for Drongo Corporation? 8.00% O 8.50% 9.00% 9.50% 10.00%