Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please show excel formulas used please answer entire questions, its all one big question. Last time only part of my question was answered and I

image text in transcribedimage text in transcribedplease show excel formulas used

please answer entire questions, its all one big question. Last time only part of my question was answered and I wasted a question for my month because they answered what I already knew how to do.

b. Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 4%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.03(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Spread = DRP + LP Rate 0.83% 1.03 0.20% U.S. Treasury AAA corporate AA corporate A corporate 1.37 0.54 1.77 0.94 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: % 7-year Corporate yield: % d. Based on the information about the corporate bond provided in part b, calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds. Round your answers to two decimal places. Years Treasury yield A-corporate yield 1 5.27% % 2 5.37% % 3 5.52% % 4 5.57% % 5 5.50% % 10 5.59% % 20 6.20% % 30 5.76% %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance And Democracy Towards A Sustainable Financial System

Authors: Alessandro Vercelli

1st Edition

3030279111, 978-3030279110

More Books

Students also viewed these Finance questions

Question

7. List behaviors to improve effective leadership in meetings

Answered: 1 week ago

Question

6. Explain the six-step group decision process

Answered: 1 week ago