34. Thirty-year Treasury bonds typically have a higher yield to maturity than two-year Treasury bonds due to a. default risk b. government deficits c. interest rate risk d. the cost of issuing long-term Treasury bonds ro ic different from the oun ions thooru 25 The liquiditu promium thoors of the form
Q: An investment will pay $10,000 eighteen months from now. What purchase price will provide a rate of…
A: Maturity amount (MV) = $10,000 Interest rate (r) = 7% Period (m) = 18 months
Q: If you are to give your assessment on the value of Artificial Intelligence in business strategy, at…
A: Artificial intelligence (AI) is the ability of a computer or a computer-controlled robot to do tasks…
Q: For the cash flows given in the table below, evaluate the unknown value "A". Use an interest rate of…
A: Present Value: The present value is the value of cash flow stream or the fixed lump sum amount at…
Q: he level of financial risk to which a firm is exposed is dependent on the firm's: (a) tax rate (b)…
A: Financial risk can be defined as the risk of availing of finance and not being able to return it. It…
Q: How long will it take money to double if it is invested at 5% compounded weekly?
A: Compound interest takes into account the interest accrued on a principal and thereby it is called as…
Q: Phoenix Motors wants to lock in the cost of 10,000 ounces of platinum to be used in next quarter's…
A: Here, Required Platinum is 10,000 ounces Future Contract Rate is $950 per ounces Time Period of…
Q: Find the monthly payment needed to amortize a typical $115,000 mortgage loan amortized over 30 years…
A: Loan amount (PV) = $115,000 Period = 30 Years Number of payments (n) = 30*12 = 360 Interest = 5.7%…
Q: 2. The Jones Company has just completed the third year of a five-year MACRS recovery period for a…
A: Book value is the value of an asset after depreciation is recorded on it. When an asset is sold,…
Q: Gordon Rosel went to his bank to find out how long it will take for $1,300 to amount to $1,720 at…
A: Present value = $1,300 Future value = $1,720 Interest rate = 0.12
Q: Fabric Outlet has 17,500 shares of stock outstanding with a par value of $1 per share. The current…
A: By splitting the stock, the market value per share will reduced because number of shares will…
Q: What are some features of the old FinTech and new FinTech
A: FinTech refers to financial technology. It is the use of technology and innovation in the field of…
Q: The University of Alaska Fairbanks, UAF is considering the conversion of an abandoned manufacturing…
A: Explanation : Internal Rate of return ( IRR) is the discounted cash flow trick which provide the…
Q: Wendell’s Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new…
A: The cost of machine is $18,600 Annual cost savings $3800
Q: Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two…
A: Cash payback of a project depicts the recovery period of the initial investment of the project as…
Q: A company issued 10-year $1,000 par value bond with a conversion ratio is 50. What is the bond…
A: Conversion price can be calculated by dividing the par value of bond by conversion ratio Conversion…
Q: You are trying to save for retirement and want to have $500,000 (fv) when you turn 65 years old…
A: In order to find the periodic payment to be made at regular interval to reach the retirement goal,…
Q: Construct a depreciation schedule using the straight line method for a new lorry that costs $80,000…
A: Basic Introduction:- Depriciation is allocation of total cost of assest over its useful life or in…
Q: i. Determine the outstanding balance on your current loan for the remaining 240 payments. ii. If…
A: Mortgage amortization refers to a schedule which is prepared to shows the periodic loan payments,…
Q: Clark and Lana take a 30-year home mortgage of $127,000 at 7.9%, compounded monthly. They make their…
A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: Airlines offer an example of an industry in which the degree of operating leverage is fairly high.…
A: Leverage There are two types of leverage as mentioned below. Financial leverage Operating leverage…
Q: Leon and Heidi decided to invest $3,250 annually for only the first seven years of their marriage…
A: When periodic is payment made up to certain period of time, the annuity is calculated up to that…
Q: How much is the present value of a perpetuity of P1,000 payable semi-annually if money is worth 5%…
A: Present value of perpetuity is calculated for those securities from which keeps generating cash…
Q: BTC has 15M shares in an all-equity firm, at a price of $13 per share. The firm announced that they…
A: The overall advantage of the borrowed amount is $25million (25% of corporate tax on $100 million…
Q: The IRR on the Market is :
A: The internal rate of return refers to the profitability of the potential investments. It makes the…
Q: Paula Boothe, president of the Marigold Corporation, has mandated a minimum 10% return on investment…
A: Economic value added = Net operating profit after tax - (Invested capital×weighted average cost of…
Q: A number of cases have considered the auditor’s liability in relation to persons other than the…
A: Generally, it is considered that the auditor's liability in relation to person other than the…
Q: NPV Mutually exclusive projects Hock Industries is considering the replacement of one of its cld…
A: Given Cash flows are as; Discount rate is 10% To Find: Net present Value Profitability Index
Q: 8. Growth Company's current share price is $20.00 and it is expected to pay a $1.30 dividend per…
A: Cost of capital is the cost of raising new funds from the market. The cost of equity is higher since…
Q: You have decided to retire and want to sell your shares in a closely held, all equity firm. The…
A: Share repurchase is referred to as a transaction where a company buys back its own shares from the…
Q: tising program's net presen o the nearest whole dollar.
A: NPV = Present value of future cashoutflows -Present value of cashinflows.
Q: What court will be responsible to hear the case a lawsuit based on dispute of real estate an…
A: There is judiciary system for every type of issues faced by the common people. There is a particular…
Q: The current yield on the bond is b) The yield to maturity of the bond is
A: Current Yield on Bond: It is estimated by dividing the annual coupon payments by the price of the…
Q: If the market interest rate is 16% and the inflation rate is 10%, determine the real interest rate.…
A: Market interest rate = 0.16 Inflation rate = 0.10
Q: Decker Company sells a single product for $25. It had no beginning inventories. Operating data…
A: Gross profits is referred as the profit, which is derived by the company after the deduction of the…
Q: 11. A 8% $1,000 par-value bond with quarterly coupons maturing in nine years is to be replaced by a…
A: Here, Details of Old Bond: Par Value of Bond is $1,000 Coupon rate is 8% Compounding period is…
Q: Liam can afford $175 per month as a car payment. If Liam can get an auto loan at 4% interest for 5…
A: Present Value can be calculated using PV function in excel PV (rate, nper, pmt, [Fv], [type])…
Q: Consider the publie project at the end of the handout on "TVM and Cost-Beneft Analysis," which we…
A: NPV is the difference between Present Value of cash Inflows and Initial Investment. NPV will be…
Q: Calculate the duration of a $1,000, 6% coupon bond with three years to maturity. Assume that all…
A:
Q: what will be the new loan maturity (IN YEARS) assuming that loan payments are not reduced?
A: Loan amortization refers to a schedule which is prepared to shows the periodic loan payments, amount…
Q: risky $36,000 investment is expected to generate the following cash flows: Year 1 2 3 $ 15,750…
A: Before investing in any capital projects, a company should evaluate the profitability of the…
Q: Investments Quick and Slow cost $1,000 each, are mutually exclusive, and have the following cash…
A: NPV of Q = 1100*(1+i)^-1 - 1000 = 1100*1.07^-1 - 1000 = 1028.037 - 1000 = $28.0 NPV of S =…
Q: Which of the following presumption is correct about the reliability of audit evidence
A: Reliability of audit evidence :- Evidence from sources outside an entity is more reliable than…
Q: Time-share sales provide an opportunity for vacationers to own a resort condo for 1 week (or more)…
A: Condo Cost $ 21,873.00 Down…
Q: QUESTION 12 Members of the Federal Reserve System may include: commercial banks with a national…
A: The Federal Reserve System (FRS) is the central bank of the US. It controls all the financial…
Q: PLEASE ANSWER ONLY QUESTIONS F AND G
A: Break even analysis and cost volume profit (CVP) analysis are important analysis tools often used in…
Q: The following data are accumulated by Geddes Company in evaluating the purchase of $120,000 of…
A: Net Present Value=Sum of the present value of cash inflows-Present value of cash outflows Present…
Q: Harvey LLC’s capital structure consists of a 25-year bond issued 5 years ago with a coupon of 6% and…
A: WACC is the average cost of capital calculated by multiplying the weight with cost of funds. WACC…
Q: D4 Finance Bond portfolio currently has a duration of 4.7 and a value of $800,000. The price of the…
A: Given in the question,Value of bond = $800,000 Duration of bond = 4.7Treasury price of the…
Q: The yield to maturity for 25-year bonds is as follows for four different bond rating categories. Use…
A: The bond price is the present value of future cash flows arising from the bond. This includes…
Q: O Fall exactly by the amount of the dividend
A: A dividend refers to the amount which is to be paid to shareholders out of the company profits,…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- In Chapter 7, we saw that if the market interest rate, rd, for a given bond increased, the price of the bond would decline. Applying this same logic to stocks, explain (a) how a decrease in risk aversion would affect stocks prices and earned rates of return, (b) how this would affect risk premiums as measured by the historical difference between returns on stocks and returns on bonds, and (c) what the implications of this would be for the use of historical risk premiums when applying the SML equation.33. The yield curve is flat and all Treasury securities have a yield to maturity of 7%. What of the following bonds will see the highest percentage rise in price if the yield to maturity for all Treasuries fell to 6%?a. 15-year no-interest loan Bonds issued by the Treasury Department.b. A Treasury bond with a 12-year maturity and a ten percent nominal coupon.c. A Treasury bond with a 15-year maturity and a 12-percent annual coupon.d. A two-year zero-coupon period Bonds issued by the Treasury Department.e. A 15 percent nominal coupon 2-year Treasury bondSuppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.1 percent and a standard deviation of 9.8 percent. What is the approximate probability that your return on these bonds will be less than −3.7 percent in a given year? Use the NORMDIST function in Excel® to answer this question. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What range of returns would you expect to see 95 percent of the time? Note: A negative answer should be indicated by a minus sign. Enter your answers from lowest to highest. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. What range would you expect to see 99 percent of the time? Note: A negative answer should be indicated by a minus sign. Enter your answers from lowest to highest. Do not round intermediate calculations and enter…
- 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.A corporate bond has a nominal or observed yield of 9.8%. Your sister, the famouseconomist, has given you the following estimates:Inflation-risk premium = 3.00%Default-risk premium = 2.10%Maturity premium = 1.90%Liquidity premium = 0.50%On the basis of these data, what is the best estimate of the real risk-free rate of return?Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.50%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds? 3.33 % 2.95% 2.92% 2.68 % 2.86 %
- Which of the following observations is the most accurate? 34.A callable bond will have a lower required rate of return than a noncallable bond, assuming all other factors remain stable.b. If all other factors were equal, a company would choose to issue noncallable bonds over callable bonds.c. From the perspective of a traditional investor, reinvestment rate risk is higher than interest rate risk.d. If a 10-year, $1,000 par, zero coupon bond was sold at a price that offered buyers a 10% rate of return, and interest rates fell to the point where kd = YTM = 5%, we might be certain that the bond would sell for more than its $1,000 par value.e. If a 10-year, $1,000 par, zero coupon bond was sold at a price that provided borrowers with a 10% rate of return, and interest rates subsequently fell to the point where kd = YTM = 5%, we might be certain that the bond would sell at a discount below its $1,000 par value.Which of the following statements is the most accurate? 43. a. Long-term cash flows are riskier than short-term cash flows.Furthermore, a 20-year bond that is callable after 5 years would have a shorter projected duration, if not none at all, than a noncallable 20-year bond with equal maturity. As a result, if all other features are equal, investors can demand a lower rate of return on the callable bond than on the noncallable bond. b. A noncallable 20-year bond would have an average life that is equivalent to or better than a callable 20-year bond with otherwise similar characteristics. Furthermore, the longer a bond's lifespan, the higher the interest rate danger it poses to buyers. As a result, while all other factors remain stable, callable bonds subject borrowers to fewer interest rate risk than noncallable bonds. c. Both a and b are right statements. d. None of the above claims are true.If the pure expectations theory of the term structure is correct, which of the following statements would be CORRECT? a. If a 1-year Treasury bill has a yield to maturity of 7% and a 2-year Treasury bill has a yield to maturity of 8%, this would imply the market believes that 1-year rates will be 7.5% one year from now. b. The yield on a 5-year corporate bond should always exceed the yield on a 3-year Treasury bond. c. Interest rate (price) risk is higher on long-term bonds, but reinvestment rate risk is higher on short-term bonds. d. An upward-sloping yield curve would imply that interest rates are expected to be lower in the future. e. Interest rate (price) risk is higher on short-term bonds, but reinvestment rate risk is higher on long-term bonds
- Assume the following: The real risk-free rate, r*, is expected to remain constant at 3%. Inflation is expected to be 3% next year and then to be constant at 2% a year thereafter. The maturity risk premium is zero. Given this information, which of the following statements is CORRECT? a. A 5-year corporate bond must have a lower yield than a 7-year Treasury security. b. The yield curve for U.S. Treasury securities will be upward sloping. c. A 5-year corporate bond must have a lower yield than a 5-year Treasury security. d. The real risk-free rate cannot be constant if inflation is not expected to remain constant. e. This problem assumed a zero maturity risk premium, but that is probably not valid in the real world.A company's 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk free rate (r*) is 2.3%. The average inflation premuim is 2.5% and the maturity risk premium is estimated to be 0.1X(t-1) % where t= the number of maturity. If the iquidity premium is 1% what is the default risk premium on the corporate bonds.? Please show formula and calculation. Do it in manual computation not in spreadsheet.A 5-year Treasury bond has a 3.6% yield. A 10-year Treasury bond yields 6.65%, and a 10-year corporate bond yields 8.9%. The market expects that inflation will average 3.15% over the next 10 years (IP10 = 3.15%). Assume 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: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described. . What is the yield on this 5-year corporate bond? Round your answer to two decimal places