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You read in The Wall Street Journal that 30-day T-bills are currently yielding 2%.
1. You read in The Wall Street Journal that 30-day T-bills are currently yielding 2%. Your brother-in-law, a broker at Kyoto Securities, has given you the following estimates of current interest rate premiums on a 1 year bond:
· Liquidity premium = 3%.
· Maturity risk premium = 1.5%.
· Default risk premium = 1.2%.
On the basis of these data, what is the long term treasury bond rate?
2. A Treasury bond that matures in 10 years has a yield of 4.5 percent. A 10-year corporate bond has a yield of 6 percent. Assume that the liquidity premium on the corporate bond is 0.6 percent. What is the default risk premium on the corporate bond?
3. You read in The Wall Street Journal that 30-day T-bills are currently yielding 0.5%. Your brother-in-law, a broker at Kyoto Securities, has given you the following estimates of current interest rate premiums on a 1 year bond:
· Liquidity premium = 0.5%.
· Maturity risk premium = 0.5%.
· Default risk premium = 1%.
On the basis of these data, what is the short term corporate bond rate?
4. You read in The Wall Street Journal that 30-day T-bills are currently yielding 1%. Your brother-in-law, a broker at Kyoto Securities, has given you the following estimates of current interest rate premiums on a 10 year bond:
· Liquidity premium = 1%.
· Maturity risk premium = 1%.
· Default risk premium = 2%.
On the basis of these data, what is the long term corporate bond rate?
5. The Carter Company's bonds mature in 6 years have a par value of $1,000 and an annual coupon payment of $70. The yield to maturity for the bonds is 9%. What is the price of these bonds?
6. The Carter Company's bonds mature in 8 years have a par value of $1,000 and a semiannual coupon payment of $60. The yield to maturity for the bonds is 7%. What is the price of these bonds?
7. A corporate bond has a face value of $1,000, and 8 percent semiannual coupon. The bond matures in 8 years and sells at a price of $1,090. What is the bond's yield to maturity?
8. Consider the same bond in question 7. The bond can be called in 4 years at a call price of $1,040. What is the bond's yield to call?
