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please show readable work, thank you ! 1. (10 Percent) Lee Corp.'s 5-year bonds yield 7.80% and 5 -year T-bonds yield 4.80%. The real risk-free
please show readable work, thank you !
1. (10 Percent) Lee Corp.'s 5-year bonds yield 7.80% and 5 -year T-bonds yield 4.80%. The real risk-free rate is r=2.5%, the inflation premium for 5 -year bonds is IP=1.50%, the default risk premium for Kay's bonds is DRP =1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP =(t1)0.2%, where t= number of years to maturity. What is the liquidity premium (LP) on Kay's bonds? 2. (10 Percent) Follie Corp.'s bonds have a 20 -year maturity, a 6.90% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 6.40%, based on semiannual compounding. What is the bond's price? 3. (15 Percent) Tom Corp.'s bonds currently sell for $958. They have a 5.8% semiannual coupon rate and a 15 -year maturity, but they can be called in 5 years at $990. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return (annual) should an investor expect to earn if he or she purchases these bonds Step by Step Solution
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