What is the default risk premium on Aaa corporate bond, if the interest rate on that bond is 3.25 percent and the interest rate on a Treasury security is 1.16 percent?
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What is the default risk premium on Aaa corporate bond, if the interest rate on that bond is 3.25 percent and the interest rate on a Treasury security is 1.16 percent?
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- What is interest rate (or price) risk? Which bondhas more interest rate risk: an annual payment1-year bond or a 10-year bond? Why?what is the price of the Pybus bonds if they receive an A rating will be $ ?QUESTION EIGHTa) What is the relationship between the price of a bond and its YTM? b) Explain why some bonds sell at a premium over par value while other bonds sell at a discount.What do you know about the relationship between the coupon rate and the YTM for premiumbonds? What about for discount bonds? For bonds selling at par value? c) What is the relationship between the current yield and YTM for premium bonds? For discountbonds? For bonds selling at par value? SEBO PLC just paid a dividend of K2.75 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on SEBO stock is 13 percent, what will a share of stock sell for today?
- Calculating the risk premium on bonds The text presents a formula where (1+1) = (1-p)(1 +i+x) + p(0) where i is the nominal interest rate on a riskless bond x is the risk premium p is the probability of default (bankruptcy) If the probability of bankruptcy is zero, the rate of interest on the risky bond is When the nominal interest rate for a risky borrower is 8% and the nominal policy rate of interest is 3%, the probability of bankruptcy is %. (Round your response to two decimal places.) When the probability of bankruptcy is 6% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) When the probability of bankruptcy is 11% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) The formula assumes that payment upon default is zero. In fact, it is often positive. How would you change the formula in this case?…Does the interest rate on a T-bond include a default risk premium? Explain.Can the price of bond B be determined using the PV function or any other function in excel? What is the EAR (effective annual rate) of these two bonds?
- The nominal interest rate of a corporate bond includes all of the following components EXCEPT _____. Group of answer choices real risk-free interest rate expected inflation unexpected inflation credit risk premiumIf a company's bonds are selling at a discount, then Select one: a. The current interest rates are below the coupon rate b. The YTM is below the coupon interest rate c. The coupon interest rate is equal to the going interest rate d. The going rate of interest is above the coupon rate1. If a company's bonds are selling at a discount, then Select one: a. The coupon interest rate is equal to the going interest rate b. The going rate of interest is above the coupon rate c. The current interest rates are below the coupon rate d. The YTM is below the coupon interest rate
- Which of the following is true about rates? the total rate for a corporate bond is the real rate plus the inflation rate the total rate equals the real rate plus inflation plus a risk premium the risk premium is usually equal to inflation expectations the nominal rate equals the total rate minus the real rateIf interest rates rise after a bond issue, what would happen to the bond's price and YTM? Does the time to maturity affect the extend to which interest rates changes affect the bond price? (Please give an example)What is the nominal rate of return on an Ayala Inc.. bond if the real rate of interest is 3 percent, the inflation risk premium is 2 percent, the Philippine T-bill rate is 5 percent, the maturity risk premium on the Ayala Inc. bond is 3 percent, the default risk premium on the Ayala Inc. bond is 2 percent, and the liquidity risk premium on the bond is 1.25 percent?