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Unformatted text preview: maturity yield 4.40%. The default risk premium for Keys' bonds is DRP = 0.40%, the liquidity premium on Keys' bonds is LP = 1.70% versus zero on T-bonds, inflation premium (IP) is 1.5%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*? 5. Consider a bond which pays 7% semiannually and has 8 years to maturity. The market requires an interest rate of 8% on bonds of this risk. What is this bond’s price? 6. The value of a 20 year zero coupon bond when the market required rate of return of 9% (semiannual) is: 7. Yest Corporation's bonds have a 15-year maturity, a 7% coupon (paid semiannually), and a par value of $1,000. The market interest rate (r d ) is 6%, based on semiannual compounding. What is the bond’s price? 8. Brown Enterprises’ bonds currently sell for $1,025. They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000. What is their current yield?...
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