difference of 6% is observed for the nominal rate of two securities, a 10-year long-term corporate and a 10-year long-term government. Maturity risk premium increases by 0.5% per year of maturity. Quoted rates for short-term government securities as
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A difference of 6% is observed for the nominal rate of two securities, a 10-year long-term corporate and a 10-year long-term government. Maturity risk premium increases by 0.5% per year of maturity. Quoted rates for short-term government securities as proxy for the risk-free rate is 4%. What is the nominal rate for the 10-year long term corporate security? (In percentage)
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- The difference between the quotes rates of the 12-year long-term corporate and a 12-year long-term government security available currently in the market is 5.50%. Quoted rates for short-term government securities is 3%. Maturity risk premium increases by 1% per year of maturity, hence, it is in direct proportion to the number years of maturity. What is the quoted rate for the 12-year long-term corporate security?the information regarding the domestic government fixed-interest bond market is tha the current price of a 2-year zero-coupon bond is £97 per £100 nominal, the 2-year forward rate at time t=2 is 4.6% and the 4-year par yield is 4.1%.Hence, calculate, the current price of a 4-year bond of £20,000 nominal paying coupons at a rate of 5% per annum and redeemed at 115%.A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 3.9% per year, and the real risk-free rate (r*) is 2.15%. The average inflation premium is 1.35%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %
- The annual yield on a 4-year corporate security is 6.875 percent, while the annual yield on a 6-year corporate security is 7.85 percent. Assume that the real, risk-free rate of interest is expected to be constant over time at 2 percent, the default risk and liquidity premium on both securities is equal to 1.75 percent. Also assume that the maturity risk premium for all securities can be estimated as MPRt = (0.15%)*(t-1) where t is the number of periods until maturity. your analysis shows that the expected rate of inflation for year 2 is 2%. Year 3 is 3.5%. The expected rate of inflation for year 5 is 4.5%. Determine the anticipated rate of inflation for year 6.Two years ago, Company XYZ issued $100 million worth of ten-year bonds with a face value of $1,000 and a coupon rate of 5%. Coupon payments are made semi-annually. Two years ago, the market yield-to-maturity was 3% p.a. Due to the increased insecurity facing the industry, the market yield to maturity is now 7% p.a. a) Determine the market price of the bonds at issue based on an appropriate model. b) Based on the yield-to-maturity today, assess whether the price has changed and proceed to determine its market price today. c) Compare the results in (a) and (b) above and interpret the sensitivity of bond prices to maturity and yield to maturity.A corporate bond is currently quoted at a price of $1197.93 and carries a 10 percent annual coupon rate. The bond’s face value is $1000, and pays coupon semiannually. What is the current yield of the bond? Suppose the bond price in one year is $1193.68, assuming no change in yield-to-maturity, what is the capital gain yield? What is the yield-to-maturity for this bond?
- You are given the following information regarding the domestic government fixed-interest bond market: the current price of a one-year bond paying coupons at a rate of 4% per annum and redeemed at par is £102.25 per £100 nominal, and the current price of a two-year bond paying coupons at a rate of 6.5% per annum and redeemed at par is £100.37 per £100 nominal. Calculate, to 4 decimal places (in percentages), the two-year spot rate of interest, i2 .The YTM on 1-year zero-coupon bonds is 5 per cent and the YTM on 2-year zeros is 6 percent. The YTM on 2-year-maturity coupon bonds with coupon rates of 12 per cent (paidannually) is 6 per cent. What arbitrage opportunity is available for an investment banking firm?What is the profit on the activity? Assume US $ denominated bonds with par value of $1000for all calculations.For at least the next 10 years, the real risk-free rate of interest, r*, is expected to remain at 3%, inflation is expected to steadily increase steadily, and the maturity risk premium is expected to be 0.1(t - 1)%, where t is the number of years until the bond matures. Given this information, which of the following statements is correct? The yield curve must be “humped.” The yield on 5-year Treasury securities must exceed the yield on 10-year corporate bonds. The yield on 5-year corporate bonds must exceed the yield on 8-year Treasury bonds. The yield on 2-year Treasury securities must exceed the yield on 5-year Treasury securities. The yield curve must be upward sloping
- Suppose that five years ago a corporation issued a 9-year bond with a coupon rate of 6.50% and the indenture specifies a make-whole call premium of 75 basis points over the yield on a comparable Treasury at the time the call provision is exercised. Assume the call is exercised immediately after the payment of a coupon. At the time the issue is called, the yield on a comparable Treasury is 4.05%. What is the current make-whole call price per $100 of par value?The following data about the real risk free rate and other risk premiums are gathered:· The real risk free rate is 4%.· Inflation premium is constant at 3.5% in the foreseeable years· Maturity premium is determined using the equation of 0.5%(number of year of maturity).· Liquidity premium is available for all corporate securities at 1.5%.· Default risk is set at 3%.What is the quoted rate on a security issued by the corporations that will mature after 8 years? (In percentage)In a given securities market, an investment at time t=0 of £95 generates a return of £105 at time t=2 years. However, an investment of £95 at time t=2 (which is agreed from the outset) generates a return of £108 at time t=5 years. Given that the 5-year par yield is 5.3%, calculate, to two decimal places, the current price of a 5-year bond of £10,000 nominal paying coupons at a rate of 4.5% per annum and redeemed at 95%.