1. Blazio Corporation's 5-year bonds yield 6 . 75 %, and 5-year T-bonds yield 4.75%. The real...
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1. Blazio Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80%, the default risk premium for Blazio's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Blazio's bonds is LP = 1.10%, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) x 0.1%, where t = number of years to maturity. What is the inflation premium (IP) on 5-year bonds?
a. 1.65%
b. 1.50%
c. 1.71%
d. 1.60%
e. 1.55%
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2. Washing Corporation's bonds have a 15-year maturity, a 5.00% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4.00%, based on semiannual compounding. What is the bond’s price?
a.1,160.25
b.1,026.60
c.1,032.05
d.1,146.27
e.1,111.98
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