Explore BrainMass

Explore BrainMass

    Bonds: market price, default risk premium, beta coefficient

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1.) J. Corp.'s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?

    2.) A treasury bond that matures in 10 years has a yield of 6%. A 10- year corporate bond has a yield of 9%. Assume that the liquidity premium o the corporate bond is 0.5%. What is the default risk premium on the corporate bond?

    3.)Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of - 0.3, and a beta coefficient of - 1.5. Security B has an expected return of 12%, a standard deviation of returns of 10%, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?

    4.) Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2?

    © BrainMass Inc. brainmass.com June 3, 2020, 10:33 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/bonds-market-price-default-risk-premium-beta-coefficient-stock-required-rate-of-return-236848

    Solution Summary

    The market price, default risk premium and beta coefficient for bonds are analyzed. The required rate of return on a stock is determined.

    $2.19

    ADVERTISEMENT