Fin11

Bond Yield Credit Risk Finance Assignment Help with Solutions Online

Question 1:
Using the most recent issue of the Wall Street Journal, review the yields for the following securities:

Type Maturity Yield
Treasury 10-year
Corporate: high quality 10-year
Corporate: medium quality 10-year
Municipal (tax-exempt) 10-year

A) If credit (default) risk is the only reason for the yield differentials, then what is the default risk premium on the corporate high-quality bonds? And on the medium quality bonds?

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Question 2:
At the beginning of 2009, the Market Place was concerned with interest rate levels and the possibility of inflation. Given the following information, determine if you agree that the FED had anything to be concerned about. (See point value below.)

Current US Treasury Rates Glance:

==> ” Rates for US Treasury Bonds, Bills and Notes. ”

 

  COUPON MATURITY
DATE
CURRENT
YIELD
3-Month 0.000 03/26/2009 0.06
6-Month 0.000 06/25/2009 0.22
12-Month 0.000 12/17/2009 0.36
2-Year 0.875 12/31/2010 0.88
3-Year 1.125 12/15/2011 1.06
5-Year 1.500 12/31/2013 1.51
10-Year 3.750 11/15/2018  2.13
30-Year 4.500 05/15/2038  2.61

a. Calculate the annual forward rates for one year and two years from now.
b. Calculate the annual expected inflation rates for each of the current and next two years if the real rate is defined as 2%.
c. Discuss if the FED should have been concerned with inflation.

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