Question
A) The XYZ Company has two bond issues outstanding. Both bonds pay $95 annual interest plus $1,000 at maturity. Bond L has a maturity of
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A) The XYZ Company has two bond issues outstanding. Both bonds pay $95 annual interest plus $1,000 at maturity. Bond L has a maturity of 22 years, and Bond S has a maturity of 2 year. What will be the value of each of these bonds when the going rate of interest is 10%? Assume that there are only two more interest payments to be made on Bond S.
A) The XYZ Company has two bond issues outstanding. Both bonds pay $95 annual interest plus $1,000 at maturity. Bond L has a maturity of 22 years, and Bond S has a maturity of 2 year. What will be the value of each of these bonds when the going rate of interest is 10%? Assume that there are only two more interest payments to be made on Bond S.
B) A Treasury bond that matures in 20 years has a yield of 5.5%. A 20-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 1.0%. What is the default risk premium on the corporate bond?
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