Your firm is interested in investments and reads in the Treasury Direct that T-Bills are yielding 10%. Your sister, a broker at YXC Securities, advised you to explore either treasury or corporate investments, given the current interest rate premiums. The data she gave is represented in the table : Interest Rates Inflation premium (IP) 6% Maturity risk premium 2% (MRP) Default risk premium for AAA bonds (DRP) Default risk premium for BBB bonds (DRP) Liquidity premium for long-term Treasury bonds (T-bonds) (LP) 3% 4% 1%

Your firm is interested in investments and reads in the Treasury Direct that T-Bills are yielding 10%. Your sister, a broker at YXC Securities, advised you to explore either treasury or corporate investments, given the current interest rate premiums. The data she gave is represented in the table : Interest Rates Inflation premium (IP) 6% Maturity risk premium 2% (MRP) Default risk premium for AAA bonds (DRP) Default risk premium for BBB bonds (DRP) Liquidity premium for long-term Treasury bonds (T-bonds) (LP) 3% 4% 1%

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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You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.50% Default risk premium = 1.40% Liquidity risk premium = 1.00% Maturity risk premium = 2.00% a. What is the inflation premium? b. What is the fair interest rate on Moore Corporation 30-year bonds? Note: Round your percentage answers to 2 decimal places (ie., 0.1234 should be entered as 12.34). Expected inflation premium Fair interest rate
You are considering an investment In 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.40 percent. Your broker has determined the following Information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.60% Default risk premium = 1.30% Liquidity risk premium = 0.80% Maturity risk premium = 1.90% a. What is the inflation premium? (Round your answer to 2 decimal places.) Expected IP b. What is the fair interest rate on Moore Corporation 30-year bonds? (Round your answer to 2 decimal places.) Fair Interest rate
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 0.40 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.33% Default risk premium = 1.55% Liquidity risk premium = 0.90% Maturity risk premium = 1.05% a. What is the inflation premium?b. What is the fair interest rate on Moore Corporation 30-year bonds? (For all requirements, round your answers to 2 decimal places. (e.g., 32.16)) Inflation Premium= % Fair intrest rate= %
You are considering an investment in 30-year bonds issued by Green Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 5.25 percent. Your broker has determined the following information about economic activity and Green Corporation bonds: Real risk-free rate = 2.25% Default risk Premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% a) What is the inflation premium? b) What is the fair interest rate on Green Corporation 30-year bonds?
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.35 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.65% Default risk premium = 1.25% Liquidity risk premium = 0.70% Maturity risk premium = 1.85% What is the inflation premium? What is the fair interest rate on Moore Corporation 30-year bonds? ( explain all with proper address ) .
Your friend invested part of their 401K portfolio in bonds. The bond investment has two major categories A - Bonds that have a 2 year duration (maturity) B - Bonds that have a 9-year duration (maturity). Required: Your friend told you that they have heard that interest rates will be decreasing in the near future. The question from your friend is should they place all of their money that has been invested in bonds into the 2-year duration (maturity) portfolio or the 9-year duration (maturity). The goal is to increase the total value of the bond investment. What is your answer and explain to your friend so they understand the concept?
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills page 55are currently earning 3.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 2.25% Default risk premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% What is the inflation premium? What is the fair interest rate on Moore Corporation 30-year bonds?
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.75% Default risk premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% What is the inflation premium? What is the fair interest rate on Moore Corporation 30-year bonds?
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 2.15 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:Real risk-free rate = 0.75%Default risk premium = 2.05%Liquidity risk premium = 1.40%Maturity risk premium = 2.65% What is the inflation premium? (Round your answer to 2 decimal places.) Expected IP ______.__% What is the fair interest rate on Moore Corporation's 30-year bonds? (Round your answer to 2 decimal places.) Fair Intrest Rate _______.__%
1 ) Solve the following quesitons in an Excels spreadsheet, and create a cash-flow table for each Bond A and Bond B over 6 years. a) Calculate the yield rates for two bonds described below. b) Correctly use Rate of Return (ROR) analysis to determine which, if either, bond an investor with a MARR of 10%, should purchase. c) Confirm your answer to part (b) using Present Worth Analysis. Type out formulas used and calculations performed. d) Confirm your answer to part (b) using Annual Worth Analysis. Type out formulas used and calculations performed.
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The wall street journal reports that one-year bonds are currently earning 1.25 percent. Your broker has determined the following information about economic activity and moore corporation bonds: Real risk-free rate = 0.75% Default risk premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% a. what is the inflation premium? b. what is the fair interest rate on Moore Corporation 30-year bonds?
A nominal risk-free rate is currently 3.5%. A broker at INV Securities, has given you the following estimates of current interest rate premiums: Inflation Premium: 2%, Liquidity Risk Premium 1.5%. Maturity Risk Premium 3%, and Default Risk Premium 1.5%. Based on these data, what are the rates of short-term corporate bonds? O 7.5% O 6.5% 8% 8.5%

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