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Bonds: market price, default risk premium, beta coefficient

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?

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.

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