HomeworkLib
Question

1. The real risk-free rate, r*, is 2.8%. Inflation is expected to average 1.65% a year...

1. The real risk-free rate, r*, is 2.8%. Inflation is expected to average 1.65% a year for the next 4 years, after which time inflation is expected to average 3.35% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 9.25%, which includes a liquidity premium of 0.4%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

What is its default risk premium

=bond yield-real risk free rate-inflation premium-liquidity premium-maturity risk premium

=9.25%-2.8%-(1.65%*4+3.35%*4)/8-0.4%-0%

=3.55%

the above is answer..

0 0
Add a comment
Know the answer?
Add Answer to:
1. The real risk-free rate, r*, is 2.8%. Inflation is expected to average 1.65% a year...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • the real risk-free rate is 2.5%. Inflation is expected to average 2.8% a year for the...

    the real risk-free rate is 2.5%. Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 8%, which includes a liquidity premium of 0.75%. What is its default risk premium?

  • The real risk-free rate, r*, is 1.5%. Inflation is expected to average 1.2% a year for...

    The real risk-free rate, r*, is 1.5%. Inflation is expected to average 1.2% a year for the next 4 years, after which time inflation is expected to average 4.3% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 9.5%, which includes a liquidity premium of 0.7%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places. %

  • The real risk-free rate, r*, is 1.95%. Inflation is expected to average 2.9% a year for...

    The real risk-free rate, r*, is 1.95%. Inflation is expected to average 2.9% a year for the next 4 years, after which time inflation is expected to average 3.75% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 8.95%, which includes a liquidity premium of 0.9%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

  • The real risk-free rate, r*, is 1.8%. Inflation is expected to average 3.5% a year for...

    The real risk-free rate, r*, is 1.8%. Inflation is expected to average 3.5% a year for the next 4 years, after which time inflation is expected to average 4.65% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 9.15%, which includes a liquidity premium of 0.9%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

  • The real risk-free rate, r*, is 3%. Inflation is expected to average 2.75% a year for...

    The real risk-free rate, r*, is 3%. Inflation is expected to average 2.75% a year for the next 4 years, after which time inflation is expected to average 4.05% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 9.15%, which includes a liquidity premium of 0.8%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

  • The real risk-free rate, r*, is 2.5%. Inflation is expected to average 2.3% a year for...

    The real risk-free rate, r*, is 2.5%. Inflation is expected to average 2.3% a year for the next 4 years, after which time inflation is expected to average 5.25% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 11.95%, which includes a liquidity premium of 0.65%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

  • it is 4.2% eBook The real risk-free rate, is 1.5%. Inflation is expected to average 1.3%...

    it is 4.2% eBook The real risk-free rate, is 1.5%. Inflation is expected to average 1.3% a year for the next 4 years, after which time inflation is expected to average 4.1 % a year. Assume that there is no maturity risk premium. A 9-year corporate bond has a yield of 11.2%, which includes a liquidity premium of 0,3% What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places

  • The real risk-free rate is 0.25%. Inflation is expected to average 1.0% a year for the...

    The real risk-free rate is 0.25%. Inflation is expected to average 1.0% a year for the next 2 years, after which time inflation is expected to average 2.00% a year. Assume that there is no maturity risk premium. A 16-year corporate bond has a yield of 16.0%, which includes a liquidity premium of 0.50%. What is its default risk premium? 13.875% 14.250% 13.375% 13.250%

  • The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected...

    The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 5 % per year for each of the next three years and 4% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t- 1) % , where t is the security's maturity. The liquidity premium (LP) on all Liukin Holdings Inc.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): RatingDefault Risk PremiumU.S....

  • The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected...

    The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 5% per year for each of the next two years and 4% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Gauge Imports Inc.’s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT