[Solved] Assignment 219455

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Assignment Details

Subject: Business    / Finance
Question
1?Which of the following statements is most correct?
Answera. If the maturity risk premium is zero, the yield curve must be flat.b. A 10-year corporate bond must have a higher yield than a 5-year Treasury bond.c. A 10-year Treasury bond must have a higher yield than a 5-year Treasury bond.d. If the Treasury yield curve is downward sloping, the yield curve for corporate bonds must also be downward sloping.2?Marshall Manufacturing has just borrowed money at 13.5% for 2 years. The pure rate ofinterest is 2%. Marshall’s default risk premium is 4%, its liquidity risk premium is 2%, andits maturity risk premium is .5%. Inflation is expected to be 3% during the first year of theloan’s life. What does the lender expect the inflation rate to be in the loan’s second year?
a.3%
b.4%
c.5%
d.7%
e. None of the statements above is correct.3?The 10-year bonds of Gator Corporation are yielding 8 percent per year.Treasury bonds with the same maturity are yielding 6.4 percent per year. The real risk-free rate (r*) has not changed in recent years and is 3 percent. The average inflation premium is 2.5 percent and the maturity risk premium takes the form: MP = 0.l%(t – l) where t = number of years to maturity. If the liquidity premium is 0.5 percent, what is the default risk premium on the corporate bond?
ANS
a.0.7%
b 1.1%
c 1.2%
d 2.5%

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