You are considering an investment in a BBB-rated U.S. corporate bond but you are not sure...

  

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You are considering an investment in a BBB-rated U.S. corporate bond but you are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; the default risk premium for AAA rated corporate bonds is 3.5%.; and, the default risk premium for BBB rated corporate bonds is 5.5%. What rate of interest should the U.S. corporate bond pay? You are considering an investment in a BBB-rated U.S. corporate bond but you are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; the default risk premium for AAA rated corporate bonds is 3.5%.; and, the default risk premium for BBB rated corporate bonds is 5.5%. What rate of interest should the U.S. corporate bond pay?

Answer rating: 100% (QA)

To calculate the rate of interest that the BBBrated US corporate bond should pay we ne... View the full answer