3 Calculating Interest Rates The Real Risk Free Rate R Is 2 8 And Is Expected To Remain Constant Inflation Is Expec 1 (23.27 KiB) Viewed 29 times
3 Calculating Interest Rates The Real Risk Free Rate R Is 2 8 And Is Expected To Remain Constant Inflation Is Expec 2 (20.19 KiB) Viewed 29 times
3. Calculating interest rates The real risk-free rate (r) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next five years and 3% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t-1) %, where t is the security's maturity. The liquidity premium (LP) on all Global Satellite Corp.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating U.S. Treasury AAA AA A 888 Default Risk Premium O 8.12% O 7.57% O 5.25% 8.67% 0.60% 0.80% 1.05% 1.45% Global Satellite Corp. issues twelve-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?
U.S. Treasury AAA AA A BBB Global Satellite Corp. issues twelve-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if ave is required, use the arithmetic average. 8.12% 7.57% 5.25% 0.60% 0.80% 1.05% 1.45% 8.67% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? A BBB-rated bond has a lower default risk premium as compared to an AAA-rated bond. In theory, the yield on a bond with a longer maturity will be higher than the yield on a bond with a shorter maturity.
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