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View Full Version : Finance Homework (real rate and default risk premimum)


Rosie105
Jul 7, 2007, 06:51 PM
How do you calculate? Is my answer correct? (a) 0.05% and 0.07% respectively. And, (b) 8% and 10% respectively.

Now, here is the problem:

You are considering an investment in a one-year government debt security with a yield of 5 percent or a highly liquid corporate debt security with a yield of 6.5 percent. The expected inflation rate for the next year is expected to be 2.5%

(a) what would be your real rate earned on either of the two investments?

(b) what would be the default risk premium on the corporate debt security?

mar3sh
Feb 8, 2011, 04:09 PM
Npbc corporation issued a new series of bonds on january1,2001. The bonds were sold at par (1000$), have a 12 percent coupon, and mature in 30 years, on December 31,2030. Coupon payments are made semiannually (on June 30 and December 31).
*what was the yield-to-maturity of Npbc's bonds on January 1,2001?
*what was price of the bond on January 1,2005, five year later, assuming that the level of interest rate had fallen to 10 percent?
*find the current yield and capital gains yield on the bond on January 1,2005, given the price as determined in part b.
*on July 1,2024, Npbc's bonds sold for 916.42$. What was the yield-to-maturity at that date?
*what was the current yield and capital gains yield on July 1,2024?
*Now, assume that you purchased an outstanding Npbc bond on march 1,2024 when the going rate of interest was 15.5%. How large a check must you have written to complete the transaction?