2) The risk free rate of interest is 3.0%. Inflation is expected to be 3.0% this...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
2) The risk free rate of interest is 3.0%. Inflation is expected to be 3.0% this year, 2.8% next year 2.5% the following year and 2.3% in each of the following years. Assume the liquidity premium is fixed at 1.25%; maturity risk premium is calculated to be .1% x (t-1); and default risk premium is fixed at 1.5% for years 1-5 and 2.2% for years 6-20. Be careful of decimals! Some of the premiums are less than 1%. Calculate the rate for the following: a) A 5 year bond. b) A 15 year bond. 2) The risk free rate of interest is 3.0%. Inflation is expected to be 3.0% this year, 2.8% next year 2.5% the following year and 2.3% in each of the following years. Assume the liquidity premium is fixed at 1.25%; maturity risk premium is calculated to be .1% x (t-1); and default risk premium is fixed at 1.5% for years 1-5 and 2.2% for years 6-20. Be careful of decimals! Some of the premiums are less than 1%. Calculate the rate for the following: a) A 5 year bond. b) A 15 year bond.
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Which statement about sociology as a science is true? A) Most sociologists reject the use of the scientific method. B) Sociologists almost always use hypothesis testing in their research. C) Sociolo...
-
(Preemptive Rights and Dilution of Ownership) Wallace Computer Company is a small, closely held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is...
-
Find the average value of f(x) = x2 in x on the interval [1, 3].
-
Miracle Home Cleanser uses a periodic inventory system. During the current year the company purchased merchandise with a cost of \(\$ 55,000\). State the cost of goods sold for the year under each of...
-
The balance sheets of Forest Company and Garden Company are presented below as at December 31, Year 8. Additional Information Forest acquired 90% of Garden for $207,900 on July 1, Year 1, and...
-
Suppose you have received a tax refund in the amount of $2,000. While you are tempted to spend it immediately on the newest iPhone, a FitBit, and some new clothes, you have decided to be financially...
-
Income statements and balance sheets data for Virtual Gaming Systems are provided below. VIRTUAL GAMING SYSTEMS Income Statements For the Years Ended December 31 Net sales Cost of goods sold Gross...
-
Post an analysis of the impact of individual perceptions on problem solving and decision making. In your analysis, do the following: Describe at least two mental models that you personally have that...
-
Producing 10,000 units of a smartphone requires $300,000 of prime costs, uses 1,800 machine hours, and takes 2,200 setup hours. The activity rates are $40 per machine hour and $100 per setup hour....
-
1. Speedy uses backflush costing to account for its manufacturing costs. The trigger points for recording inventory transactions are the purchase of materials, the completion of products, and the...
-
In the year 2122, Eurnekian Spaceports Inc. (ESI) a company that runs for already many years the Garni Village Cosmodrome on Earth and Garni Crater Spaceport on the planet Mars. Every month 56...
-
The second step in budgeting was to develop a production budget and a raw materials schedule for the first quarter of the coming year. Since there was no established policy on production scheduling,...
-
Shao and Dong were each shareholders of ShaoDong Corp., a C corporation. They decided to completely liquidate ShaoDong Corp. this year. After liquidating its remaining inventory and paying off its...
-
If the amplifier indicated by the box input impedance of oo, which of the following statements are true ? has an open loop gain as well as Feedback factor (\beta = 1/ R_1\) The feedback is voltage...
-
You have the following extracts from the income statement account and statement of financial position for Grow Hire Ltd, a transport company. There were no sales of property, plant and equipment...
-
A small but valuable piece of jewel-encrusted statuary was stolen from an antiques shop, and all foot patrol of- ficers in the area were notified by radio to look for the thief. When an officer saw...
-
You have the following information regarding taxation for Brain and Co. a software house: Required: Calculate tax paid. Income Statement (Extract) Statement of Financial Position (Extracts) From Year...
Study smarter with the SolutionInn App