Question: Using thefile belowto complete the bond table and answer thefollowing questions. The excel version is available as an attachment to this assignment for additional analysis.
Using thefile belowto complete the bond table and answer thefollowing questions. The excel version is available as an attachment to this assignment for additional analysis.
| Years | Face | Coupon | Market | ||
| Security | Rating | Maturity | Value | Rate | Price |
| Treasury | 1 | $ 1,000 | 0.00% | $ 966.66 | |
| Treasury | 3 | $ 1,000 | 2.00% | $ 939.06 | |
| Treasury | 5 | $ 1,000 | 4.40% | $ 932.42 | |
| Treasury | 10 | $ 1,000 | 7.20% | $ 1,007.12 | |
| Treasury | 20 | $ 1,000 | 6.60% | $ 908.25 | |
| Corp A | A | 5 | $ 1,000 | 8.10% | $ 1,000.00 |
| Corp B | BB | 10 | $ 1,000 | 7.90% | $ 859.88 |
| Corp C | AA | 20 | $ 1,000 | 8.20% | $ 972.22 |
What is the risk-free rate (rf)? - 3.45
2.) What is the Yield To Maturity of Corporation As bond issue?
Multiple Choice
8.3%
8.1%
8.2%
none of the above
7.9%
3.) What is the 20-year Maturity Risk Premium (rmp)?
Multiple Choice
none of the above
3.5%
3.4%
4.05%
4.3%
4.) What is the BB (double-B rated corporate bond) Default Risk Premium (rdp)?
Multiple Choice
1.8%
3.1%
1.2%
2.2%
none of the above
5.) What price would you pay for a 10-year, AA bond with a Face Value of $1,000 and a coupon rate of 7.10%?
Multiple Choice
$1088.88
none of the above
$933.74
$939.61
$1121.01
6.) What price would you pay for a 5-year, BB bond with a Face Value of $1,000 and a coupon rate of 9.75%?
Multiple Choice
$1024.97
$1101.20
$987.50
$1013.48
none of the above
7.) Why is the Maturity Risk Premium for 20 years greater than the Maturity Risk Premium for 5 years?
Multiple Choice
At shorter maturities, there is greater Inflation Risk
None of the choices is correct
At longer maturities, there is greater Default Risk
At longer maturities, there is greater Interest Rate Risk
At shorter maturities, there is greater Default Risk
8.) What would most likely happen if the A bond were to be downgraded to a rating of BB?
Multiple Choice
The Default Risk Premium would increase and the bond price would decrease
The Default Risk Premium would increase and the bond price would increase
The Maturity Risk Premium would increase and the bond price would increase
The Maturity Risk Premium would increase and the bond price would decrease
None of the above
9.)
What price would you pay for a3-year, BB bond with a Face Value of $1000 and semi-annual coupon rate of 8%
Multiple Choice
$1121.44
$1013.48
$1018.39
none of the above
$987.50
All these are interlinked, please answer all if possible. Thank you!!!
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