of a derivative that pays off $100 after one year if a company has defaulted during the year is $5. The value of a derivative that pays off $100 after one year if a company has not defaulted is $97. (a) What is the risk-free rate? (b) What is the risk-neutral probability of defau

What does WRF = -0.50 mean? Group of answer choices The investor can borrow money at the risk-free rate. The investor can lend money at the current market rate. The investor can borrow money at the current market rate. The investor can borrow money at the prime rate of interest. The investor can lend money at the prime rate of interest.

If we assume that investor can borrow at risk-free interest rate, then the efficient frontier is   1) AB   2) MV-B   3) Rf-T-A   4) Rf-T-B   5) Rf-T-L

Which of the following is true about Interest Rate? i. The Fisher Effect illustrates the positive relationship between inflation and nominal interest rates. ii. APR will always be greater than the EAR. iii. We can find the nominal interest rate by adding the default and maturity premiums to the sum of the real rate and inflation. O A. ii and i only O B. i and ii only OC. i only O D. i, ii, and iii

[S1] Prices of existing bonds move upward as marketinterest rates move downward. [S2] Assuming the samenominal interest rate, the investment with the higher riskwill have a higher value.

Calculate a security’s default risk premium where the equilibrium rate of return is 8 percent, the inflation risk premium is 1.25 percent, the real risk-free rate is 3.5 percent, the liquidity risk premium is 0.35 percent, and the maturity risk premium is 0.95 percent and there are no special covenants.

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Why do the prices of fixed-rate bonds fall if expectations for inflation rise?