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Yield Rate on a Year Corporate Bond Explanation

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You read in the Wall Street Journal that a 30 day T-bill currently is yielding 8%. Your brother in law, a broker for Madoff Investments has given you the following estimates of current interest rate premiums.
Inflation Premium 5%
Liquidity Premium 1%
Maturity Risk Premium 2%
Default Risk Premium 2%

Based on these data, what is the real risk free rate of return?
What is the yield on a one year corporate bond with a $1000 face value that pays a 12% annual dividend if it was purchased for $950 and held until maturity?
If you require a 20% yield on a one year corporate bond with a $1000 face value and a 12% annual premium what is the most you should be willing to pay for this bond?

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Yield Rate on a Year Corporate Bond Explanation
You read in the Wall Street Journal that a 30 day T-bill currently is yielding 8%. Your brother in law, a broker for Madoff Investments has given you the following estimates of current interest rate premiums.
Inflation Premium 5%
Liquidity Premium 1%
Maturity Risk Premium 2%
Default Risk Premium 2%

Based on these data, what is the real risk free rate of return?
The real risk free rate of return for a 30 day T-bill is 8% because T-bill does not have any premium as ...

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This solution is comprised of a detailed explanation to answer what is the real risk free rate of return.

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Corporate bonds: real risk-free rate

The real risk-free rate is expected to remain constant at 3%. Inflation is expected to be 2% a year for the next 3 years, and then 4% a year thereafter. The maturity risk premium is 0.1% (t-1), where t equals the maturity of the bond. (The maturity risk premium on a 5 year bond is 0.4%.) A 5 year corporate bond has a yield of 8.4%.

What is the yield on a 7-year corporate bond that has the same default risk and liquidity premiums as a 5-year corporate bond??

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