1. The return on a 30 -year Treasury Bond is 8%. A similar 30 -yr corporate bond has a total return of 11% and has a liquidity risk premium of 0.6%. What is the default risk premium of the corporate bond? 

2. ACME, Inc, has an outstanding 5-year bond that yields 8.0% to bondholders. The average real rate of return is 1.5% and the firm faces a liquidity risk premium of 0.2% and 2% default risk premium. ACME, Inc bond has a 1% maturity risk premium. Additionally, ACME, Inc, estimates inflation rates to be 1% for the next four years. What is the expected inflation rate in the fifth year? 

3. Tort, Inc has issued a two-year bond with a yield of 6% per annum. The yield in its one-year bond is 4.5%. If it plans to issue one-year bonds next year, what is the expected yield on this bond? 

4. The yield on a 5-year Treasury Bond is 3.76% and the yield on a rare 4-year Treasury bond is 5.4%. What is the expected one-year interest rate on a 1-year T-Bill in four years? 

5. YOP, Inc has a 3 -year outstanding bond with 13% yield. Investors expect to earn an average of 3% in real rate of return. Inflation is expected to be 1.5%,2.0% and 4% for the next 3 years. Its lack of popularity in the financial market requires it to pay 2.5% for its lack of liquidity, and its relatively short amount of time before maturity only requires a 1.5% maturity risk premium. What is YOP's default risk premium? 

6. A financial analyst wants to estimate the real risk-free interest rate over the next 9 years. The Federal Reserve Bank estimates 9 -year inflation rates to average 2.6% and the local commercial bank currently charges 10% for a 9-year loan. What is the expected real risk-free interest rate over the next 9 years?

Answer rating: 100% (QA)

1 The default risk premium of the corporate bond can be calculated by subtracting the riskfree rate from the total return of the corporate bond Default Risk Premium Total Return RiskFree Rate Given Ri... View the full answer