BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
235 views

EXPECTED INTEREST RATE The real risk-free rate is 2.05%. Inflation is expected to be 3.05% this year, 4.75% next year, and 2.3% thereafter. The maturity risk premium is estimated to be 0.05 × (t − 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note?

Summary Introduction

To identify: The yield on the 7 year Treasury note.

Introduction:

Yield:

The percentage of the securities at which the company provides the return to its investors is a yield. Yield can be there in the form of dividend and interest.

Explanation

The items required for the calculation of actual yield on 7 year Treasury note are real risk-free rate, maturity risk premium, and inflation premium.

Compute the inflation premium

Given,

The inflation of current year is 3.05%.

Inflation of the next year is 4.75%.

Further inflation is 2.3%.

Formula to calculate the inflation premium for the 7 year,

Inflationpremium=(Inflationforthecurrentyear+Inflationforthenextyear+5(Inflationforthefurtheryears))7

Substitute 3.05% for inflation for current year, 4.75% for inflation for the next year and 2.3% inflation for the further years.

InflationPremium=(3.05%+4.75%+5(2.3%))7=3.05%+4.75%+11.5%7=19.3%7=2.76%

The inflation premium is 2

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

How is organization height related to the span of management?

Foundations of Business (MindTap Course List)

Describe marketing uses of branding

MKTG 12:STUDENT ED.-TEXT

What is interperiod tax allocation?

Intermediate Accounting: Reporting And Analysis

What is the purpose of a standard cost sheet?

Managerial Accounting: The Cornerstone of Business Decision-Making

Over the past year, M.D. Ryngaert Co. had an increase in its current ratio and a decline in its total assets t...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Identify the two market measures calculated by FCI.

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)