HW _4 Fall2010

# HW _4 Fall2010 - Homework #4: Opens: Thursday September...

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Homework #4: Opens: Thursday September 23 rd at 3pm Closes: Sunday Sept 26 th at 11:55pm For Questions 1-4, consider the following table of data for a sample of bonds: Securit y Default Rating Remainin g Term Market Price Coupo n Rate YTM r mp,x r dp T-Bill 1 \$967.20 0.0% 3.39% T-Note 3 968.69 3.0% 4.13% T-Note 5 1006.50 4.8% 4.65% T-Bond 10 932.63 4.1% 4.97% T-Bond 20 993.64 5.0% 5.05% T-Bond 30 1577.28 8.9% 5.10% Corp D AA 5 1066.03 7.6% Corp E BBB 10 887.16 5.7% Corp F A 20 971.80 6.5% 1 . What is the maturity risk premium for the 20-year Treasury bond? a. 1.58% b. 1.66% 1

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c. 1.71% d. 1.79% 2 . What is the default risk premium for Corporate Bond E? a. 2.36% b. 1.38% c. 1.26% d. 1.13% 3 . What intrinsic value would you assign to a 30-year corporate bond with a default rating of AA, a coupon rate of 6%, a face value of \$1,000? a. \$943.44 b. \$953.57 c. \$947.22 d. \$937.19 4 . A 20-year BBB rated Corporate Bond currently sells for \$1,070.83. If you assume that it is correctly priced in the market, then what must be this bond’s coupon rate? a.
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## This note was uploaded on 11/05/2010 for the course BUS F370 taught by Professor Tom during the Spring '10 term at Indiana Institute of Technology.

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HW _4 Fall2010 - Homework #4: Opens: Thursday September...

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