Week 1 HW

Problem: 1.7 A particular security's default risk premium is 1 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 3 percent. The security's liquidity risk premium is 5 percent and maturity risk premium is 4 percent. The security has no special covenants. What is the security's equilibrium rate of return?

Calculate the nominal rate of interest for each security. Compare and discuss your findings.

Description Please use the examples provided here to work on the following two problems (show your work): Problem 1: The real rate of interest is currently 2%; the inflation expectation an premiums for a security are shown below. Inflation expectation premium 5% Risk premium 4% Find the risk-free rate of interest, RF, that is applicable to the security. b. a. Find the nominal rate of interest for the security. Droblo m 3:

Q24. A particular security's equilibrium rate of return is 10%. For all securities, the inflation premium is 2.00% and the risk free rate is 4.0%. The security's liquidity risk premium is 0.25% and maturity risk premium is 1.00%. The security has no special covenants. Calculate the security's default risk premium.

a. Calculate the expected return for each security. b. Calculate the standard deviation for each security

Solve all three parts plz

(a) Calculate the expected return for each security. (b) Calculate the standard deviation for each security Note: 1Please clear question answer no Whois one (a),& (b) 2. No need excel formula

17. Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: Security Price Today Cash Flow in One Year Cash Flow in Two Years В1 $192 $200 B2 $176 $200 a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year $200 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1600 in two years? c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for price of $260. What arbitrage opportunity is available? and a

Problem 7-10 (Algo) Required: The market price of a security is $54. Its expected rate of return is 9%. The risk-free rate is 5%, and the market risk premium is 9%. What will the market price of the security be if its beta doubles (and all other variables remain unchanged)? Assume the stock is expected to pay a constant dividend in perpetuity. (Round your answer to 2 decimal places.) Market price

2

Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.50 0.160 Repete Co. 1.19 0.133 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. % Repete Co. % What is the risk-free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Risk-free rate

A particular security's default risk premium is 4 percent. For all securities, the inflation risk premium is 3.65 percent and the real risk- free rate is 2.50 percent. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security's equilibrium rate of return. (Round your answer to 2 decimal places.) > Answer is complete but not entirely correct. Rate of return 8.65%

The real rate of interest is currently at 3%; the inflation expectation and risk premiums for a number of securities folLOW The security c has rsk premium at 2% and premium at 8% Find risk free rate of security c a.  10% b.  6% c.  11%

Nikul

7 Suppose the interest rates in the market for one-year, zero-coupon Treasury strips and for one-year, zero-coupon grade B corporate bonds are, respectively:   i = 2.05% k = 7.80%   Compute the probabilities of repayment and default as well as the risk premium.

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Suppose you observe the following situation: Security Pete Corporation Repete Company Beta 1.70 1.39 a. Expected return on market b. Risk-free rate Expected Return .180 .153 a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % %

5 Which of the following describes yield to maturity? Select one alternative O A single discount rate that gives the value of a bond equal to its market price when applied to all cash flows. O The coupon rate that causes a bond price to equal its par (or principal) value. O Interest rate earned on an investment that starts today and last for n-years in the future without coupons. O Interest rates implied by current zero rates for future periods of time.

The promised cash flows of three securities are listed below. If the cash flows are risk-free, and the risk-free interest rate is 4.5%, determine the no-arbitrage price of each security before the first cash flow is paid. (Click on the following icon in order to copy its contents into a spreadsheet.) Security A B C Cash Flow Today (S) 700 0 1,400 The no-arbitrage price of security A is S Cash Flow in One Year ($) 700 1,400 0 (Round to the nearest cent.)

Suppose you observe the following situation: Security Pete Corporation Repete Company Beta 1.25 .87 Expected Return 1080 .0820 a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return on market using Pete Corporation a. Expected return on market using Repete Company b. Risk-free rate de de % % %

i need the answer quickly

FINANCIAL RISK MANAGEMENT  1. At what price bond is trading, assuming that the bond's coupon rate is 10% per annum and the interest rate is 10%. 2. Duration is a measure of time, for example, day 1 to day S. (True/ False)