A 5-year corporate bond consists of the same default risk, Ask an Expert

Finance

problem: A 5-year Treasury bond consists of a 5.2 % yield. A 10-year Treasury bond yields 6.4%, and a 10-year corporate bond yields 8.4%. The market expects that the inflation will average 2.5 % over the next 10 years (IP10 = 2.5%). Suppose that there is no maturity risk premium (MRP = 0) and that the annual real risk free rate, r*, will remain constant over the next 10 years.

(Hint: Keep in mind that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP = 0.)

A 5-year corporate bond consists of the same default risk premium and liquidity premium as 10-year corporate bond describeed above. Illustrate the yield on this 5-year corporate bond?

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M910222

Have any Question?Write your Review or question?

Related Questions in Basic Finance

Fresh water inc sold an issue of 16-year 1000 par value

Fresh Water, Inc. sold an issue of 16-year $1,000 par value bonds to the public. The bonds have a 7.59 percent coupon rate and pay interest annually. The current market rate of interest on the Fresh Water, Inc. bonds is ...

In what way does service firms and manufacturing

In what way does service firms and manufacturing corporations compare in accounting for direct materials?

Assignment - write a financial analysis for a us-based

Assignment - Write a financial analysis for a U.S.-based, publicly traded organization. To begin, research the latest two years of financial statements for a publicly traded organization based in the United States. Obtai ...

Under what circumstances will the npv and irr offer

Under what circumstances will the NPV and IRR offer different recommendations, and which recommendation is preferred?

You are a junior analyst and you have been asked to

You are a junior analyst and you have been asked to forecast sales for lululemon for 2012. At the end of 2011, lululemon operated 147 corporate stores in North America (42 in Canada and 105 in the US). Lululemon plans to ...

For any normal distribution 68 percent of the observations

For any normal distribution, 68 percent of the observations should fall within plus or minus one standard deviation of the mean. This means 68 percent of annual Tbill returns should fall within 1.3% and 6.9%.

Questions -q1 openseas inc is evaluating the purchase of a

Questions - Q1. OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship could cost $499 million, but would operate for 2020 years. OpenSeas expects annual cash flows from operating the ship to be $ 68.7 ...

Prokter and gamble pg has historically maintained a

Prokter and Gamble (PG) has historically maintained a debt-to-equity ratio (D/E) of approximately 0.3. Its cost of equity is 7.5% and it can borrow at 4.3%. PG's tax rate is 40%. PG believes it can increase debt without ...

1 pet delight specializes in gourmet pet treatsnbspsales

1. Pet Delight specializes in gourmet pet treats. Sales estimates in millions for the next two quarters are $500 for 1Q and $600 for 2Q. All sales are made on credit. The company's beginning accounts receivable balance i ...

Skyco corporation is considering a project with the

SkyCo Corporation is considering a project with the following expected NOCF's: Year NOCFt 1 $390,000 2 $410,000 3 $385,000 A) If the firm's WACC is 12.1%, and the project costs $850,000, what is the NPV? B) What is t ...

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Basic Finance Expert