[Rosie105]

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]

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?