Business, 07.03.2020 04:27 yasdallasj

1. The real risk-free rate (r*) is 2.80% and is expected to remain constant into the future. Inflation is expected to be 6.80% per year for each of the next two years and 5.60% thereafter.

The maturity risk premium (MRP) is determined from the formula: 0.10 x (t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all National Transmissions Corp.’s bonds is 1.20%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):

Rating

Default Risk Premium

U. S. Treasury —
AAA 0.60%
AA 0.80%
A 1.05%
BBB 1.45%
National Transmissions Corp. issues thirteen-year, AA-rated bonds. What is the yield on one of these bonds? (Hint: Disregard cross-product terms; that is, if averaging is required, use an arithmetic average.)

10.58%

11.78%

6.00%

2. Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?

A) The yield on a AAA-rated bond will be lower than the yield on a AA-rated bond.

B) The yield on a AAA-rated bond will be higher than the yield on a BB-rated bond.

Answers: 3

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Answer from: destinypierre

Answer for the question:

"1. The real risk-free rate (r*) is 2.80% and is expected to remain constant into the future. Inflation is expected to be 6.80% per year for each of the next two years and 5.60% thereafter.

The maturity risk premium (MRP) is determined from the formula: 0.10 x (t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all National Transmissions Corp.’s bonds is 1.20%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):

Rating

Default Risk Premium

U.S. Treasury —

AAA 0.60%

AA 0.80%

A 1.05%

BBB 1.45%

National Transmissions Corp. issues thirteen-year, AA-rated bonds. What is the yield on one of these bonds? (Hint: Disregard cross-product terms; that is, if averaging is required, use an arithmetic average.)

10.58%

11.78%

6.00%

2. Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?

A) The yield on a AAA-rated bond will be lower than the yield on a AA-rated bond.

B) The yield on a AAA-rated bond will be higher than the yield on a BB-rated bond."

is explained in the attachment.

Explanation:

1. The real risk-free rate (r*) is 2.80% and is expected to remain constant into the future. Inflati

Answer from: Quest

prokaryotic cells do not contain a nucleus or any other membrane-bound organelle. eukaryotic cells contain membrane-bound organelles, including a nucleus. so i belive the answer is a : p hope it

Answer from: Quest

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

hope it

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