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QUESTION 22 Assume that today, the annualized one-year interest rate is 7 percent. A two-year security has an annualized interest rate of 11 percent.
QUESTION 22 Assume that today, the annualized one-year interest rate is 7 percent. A two-year security has an annualized interest rate of 11 percent. One year from now, you are planning to sell the 1-year commercial paper to investors. You also know that the liquidity premium for your company is estimated to be 1.3 percent, there is a 0.5 percent tax adjustment, and the appropriate default premium is 1.1 percent. Find the yield of your future commercial paper. (Hint: assume that future 1-year risk-free rate is 1-year forward rate minus 1 percent.) For example, if you find that the yield 12.50%, type "12.50" in the box.
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