Fin11

Posted on February 7, 2017

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:

TypeMaturityYield
Treasury10-year
Corporate: high quality10-year
Corporate: medium quality10-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. ”

 

 COUPONMATURITY
DATE
CURRENT
YIELD
3-Month0.00003/26/20090.06
6-Month0.00006/25/20090.22
12-Month0.00012/17/20090.36
2-Year0.87512/31/20100.88
3-Year1.12512/15/20111.06
5-Year1.50012/31/20131.51
10-Year3.75011/15/2018 2.13
30-Year4.50005/15/2038 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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