4. What is the yield on her Corporation's 3-year bonds? Ms. Albert Corporation has 3-year bonds....

 

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4. What is the yield on her Corporation's 3-year bonds? Ms. Albert Corporation has 3-year bonds. Inflation premium (IP) on a 3year bond is 1.00%. The real risk-free rate is r* = 2.80%, the default risk premium for her bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on her bonds is LP = 1.20%, 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. 5. What is the present value of the following cash flow stream at a rate of 10.0%? Years: 0 CFs: -$1,000 $2,450 $3,175 $4,400 6. How much money will she have when she is 65 years old? A 20-year-old student wants to save $1 a day for her retirement. Every day she places $1 in a drawer. At the end of the year, she invests the accumulated savings ($365) in a brokerage account with an expected annual return of 5%. 7. What's the FV of a 5-year $100 annuity, if the quoted interest rate is 5%, compounded monthly? 8. What is the FV of $100 after 5 years under 5% semiannually compounding? 9. How much is Effective (or equivalent) annual rate (EAR = EFF%)? The nominal interest rate is 5%, monthly compounding (the annual rate of interest actually being earned, considering compounding. EFF % for 5% monthly interest) 10. Calculate the appropriate nominal rates of long-term treasury securities (5 years) (Data: Assume inflation is expected to be 5% next year, 6% the following year, and 8% thereafter. Also, assume that the Real risk-free rate is 3 %). 4. What is the yield on her Corporation's 3-year bonds? Ms. Albert Corporation has 3-year bonds. Inflation premium (IP) on a 3year bond is 1.00%. The real risk-free rate is r* = 2.80%, the default risk premium for her bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on her bonds is LP = 1.20%, 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. 5. What is the present value of the following cash flow stream at a rate of 10.0%? Years: 0 CFs: -$1,000 $2,450 $3,175 $4,400 6. How much money will she have when she is 65 years old? A 20-year-old student wants to save $1 a day for her retirement. Every day she places $1 in a drawer. At the end of the year, she invests the accumulated savings ($365) in a brokerage account with an expected annual return of 5%. 7. What's the FV of a 5-year $100 annuity, if the quoted interest rate is 5%, compounded monthly? 8. What is the FV of $100 after 5 years under 5% semiannually compounding? 9. How much is Effective (or equivalent) annual rate (EAR = EFF%)? The nominal interest rate is 5%, monthly compounding (the annual rate of interest actually being earned, considering compounding. EFF % for 5% monthly interest) 10. Calculate the appropriate nominal rates of long-term treasury securities (5 years) (Data: Assume inflation is expected to be 5% next year, 6% the following year, and 8% thereafter. Also, assume that the Real risk-free rate is 3 %).