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PLEASE ANSWER WHAT YOU CAN ASAP THANK YOU On the first day of your summer internship, you've been assigned to work with the Chief Financial
PLEASE ANSWER WHAT YOU CAN ASAP THANK YOU
On the first day of your summer internship, you've been assigned to work with the Chief Financial Officer (CFO) of San Blas Jewels Inc. Not knowing how well trained you are, the CFO has decided to test your understanding of interest rates. Specifically, she asks you to provide a reasonable estimate of the nominal interest rate for a new issue of AAA-rated bonds to be offered by SanBlas Jewels Inc. The final format that the chief financial officer of San Blas Jewels has requested is that of equation (2-1) in the text: Nominal interest rate real risk-free interest rate + inflation premium + default-risk premium + maturity-risk premium + liquidity-risk premium Some agreed-upon procedures related to generating estimates for key variables in equation (2-1) follow. a. The current 3-month Treasury bill rate is 2.85 percent, the 30-year Treasury bond rate is 5.22 percent, the 30-year AAA-rated corporale bond rale is 6.82 percent, and the inflation rate is 2.29 percent. b. The real risk-free rate of interest is the difference between the calculated average yield on 3-month Treasury bills and the inflation rate. c. The default-risk premium is estimated by the difference between the average yields on AAA-rated bonds and 30-year Treasury bonds. d. The maturity-risk premium is estimated by the difference between the average yields on 30-year Treasury bonds and 3-month Treasury bills e. San Blas Jewels' bonds will be traded on the New York Bond Exchange, so the liquidity-risk premium will be slight. It will be greater than zero, however, because the secondary market for the firm's bonds is more What is the real risk-free interest rate? % (Round to two decimal places.) What is the inflation premium? % (Round to two decimal places.) What is the default-risk premium? % (Round to two decimal places.) What is the maturity-risk premiurn? % (Round to two decimal places.) What is the liquidity-risk premium? Enter your answer in each of the answer boxesStep by Step Solution
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