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(d) The nominal interest rate i on a riskless government bond is 6%. Imagine a firm issues a bond and this bond is now associated
(d) The nominal interest rate i on a riskless government bond is 6%. Imagine a firm issues a bond and this bond is now associated with a risk of default such that p = 0.04. Calculate the risk premium of this bond (for a risk neutral investor). (e) Bank SAM, on its balance sheet, has assets of $100m, liabilities of $90m and capital of $10m. Calculate the Bank's capital ratio. (f) Bank BAM, on its balance sheet, has assets of $100m, liabilities of $80m and capital of $20m. Calculate the Bank's leverage ratio. (g) Suppose that Bank SAM's expected return on assets is 20%, and the expected return on liabilities is 5%, calculate the Bank's expected profit. Additionally, calculate the Bank's expected return per unit of capital
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