Dakota Corporation 15-year bonds have an equilibrium rate of return of 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk free rate is 3.50 percent. The security’s liquidity risk premium is 0.25 percent and maturity risk premium is 0.85 percent. The security has no special covenants. Calculate the bond’s default risk premium.
Answer to relevant QuestionsA 2-year Treasury security currently earns 1.94 percent. Over the next two years, the real risk free rate is expected to be 1.00 percent per year and the inflation premium is expected to be 0.50 percent per year. Calculate ...The Wall Street Journal reports that the current rate on 8-year Treasury bonds is 5.85 percent, on 15-year Treasury bonds is 6.25 percent, and on a 15-year corporate bond issued by MHM Corp. is 7.35 percent. Assume that the ...List the differences between the new TIPS and traditional Treasury bonds. All else equal, which bond’s price is more affected by a change in interest rates, a short-term bond or a longer-term bond? Why?Calculate the price of a 5.2 percent coupon bond with 18 years left to maturity and a market interest rate of 4.6 percent. (Assume interest payments are semiannual.) Is this a discount or premium bond?
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