Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: T-bond=7.72% A = 9.64% BBB=10.18% AAA = 8.72% The differences in rates among these issues were most probably caused primarily by: O a. Maturity risk differences. O b. Tax effects. c. Default risk and liquidity differences. d. Real risk-free rate differences. e. Inflation differences.

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: T-bond=7.72% A = 9.64% BBB=10.18% AAA = 8.72% The differences in rates among these issues were most probably caused primarily by: O a. Maturity risk differences. O b. Tax effects. c. Default risk and liquidity differences. d. Real risk-free rate differences. e. Inflation differences.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: T-bond = 7.72% A = 9.64%AAA = 8.72% BBB = 10.18% The differences in rates among these issues were most probably caused primarily by: a. Tax effects. b. Inflation differences. c. Maturity risk differences. d. Default risk and liquidity differences. e. Real risk-free rate differences.
Assume that interest rates on 30-year Treasury and corporate bonds with different ratings, all of which are non-callable, are as follows: State your reason for the answer. T-bond = 7.72% A = 9.64% AAA = 8.72% BBB = 10.18% The differences in rates among these issues were most probably caused primarily by: Real risk-free rate differences. Tax effects. Maturity risk differences. Inflation differences. Default and liquidity risk differences.
Which of the following statements is most correct? All of the statements are correct. The yield on a 3-year Treasury bond cannot exceed the yield on a 10-year Treasury bond. The yield on a 3-year corporate bond will always exceed the yield on a 2-year corporate bond. The yield on a 2-year corporate bond will always exceed the yield on a 2-year Treasury bond.
Consider the following information for a period of years: Long-term government bonds Long-term corporate bonds Inflation Arithmetic Mean 7.8% a. Long-term government bonds b. Long-term corporate bonds 7.9 3.5 a. What is the real return on long-term government bonds? Note: 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 real return on long-term corporate bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. 4.25% %
Consider the following information for a period of years: Arithmetic Mean Long-term government bonds 7.6% Long-term corporate bonds 7.7 Inflation 4.6 What is the real return on long-term government bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is the real return on long-term corporate bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Consider the following information for a period of years: Arithmetic Mean Long-term government bonds 7.1 % Long-term corporate bonds 7.2 Inflation 4.2 a. What is the real return on long-term government bonds? (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 real return on long-term corporate bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Suppose 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…
An investor gathers the following data on three newly-issued bonds: 1-year government bond, 3.0% yield 1-year ABC corporate bond, 4.2% yield 10-year government bond, 3.8% yield If investors require a 0.5% liquidity premium for corporate bonds, what are the components of the required return on a 10-year ABC bond?
The Wall Street Journal reports that the current rate on 8-year Treasury bonds is 5.85 percent, the rate on a 15-year Treasury bond is 6.25 percent, and the rate on a 15-year corporate bond issued by MHM Corp. is 7.35 percent. Assume that the maturity risk premium is zero. If the default risk premium and the liquidity risk premium on the 8-year corporate bond issued by MHM Corp. are the same as those on the 15-year corporate bond, calculate the current rate on MHM Corp.'s 8-year corporate bond.
a. What is the price (expressed as a percentage of the face value) of a 1-year, zero-coupon corporate bond with a AAA rating and a face value of $1,000? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why? Note: Assume annual compounding.
The following table summarizes the yields to maturity on several one-year, zero-coupon securities: a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? b. What is the credit spread on AAA-rated corporate bonds? c. What is the credit spread on B-rated corporate bonds? d. How does the credit spread change with the bond rating? Why?
a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating?b. What is the credit spread on AAA-rated corporate bonds?c. What is the credit spread on B-rated corporate bonds?d. How does the credit spread change with the bond rating? Why? Security Yield Treasury 3.120AAA corporate 3.874BBB corporate 4.521B corporate 5.328

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