Question
An IBM bond promising to pay $100,000 costs $90,090. Time-equivalent Treasuries offer 8%. A. Setting aside the risk neutrality and perfect markets assumption for this
An IBM bond promising to pay $100,000 costs $90,090. Time-equivalent Treasuries offer 8%.
A. Setting aside the risk neutrality and perfect markets assumption for this question only, what can you say about the risk premium, the default premium, and the liquidity premium?
B. Returnng to our assumption that markets are risk neutral, but still setting aside the perfect markets assumption for this question, what can you say about the risk premium, the default premium, and the liquidity premium?
C. Assuming that the liquidity premium is 0.5%, what can you say about the risk premium, the default preimum, and the liquidity premium?
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Finance And Industrial Policy
Authors: Giovanni Cozzi, Susan Newman, Jan Toporowski
1st Edition
0198744501, 978-0198744504
