Corporate Bonds

Archive for September, 2010

Question: Please show how to calculate a 5-year Treasury bond has a 5.2 percent yield.?

. A 10-year Treasury bond yields 6.4 percent, and a 10-year corporate bond yields 8.4 percent. The market expects that inflation will average 2.5 percent over the next 10 years (IP10 _ 2.5%). Assume that there is no maturity risk premium (MRP _ 0), and that the annual real riskfree rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP _ LP _ 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described above. What is the yield on this 5-year corporate bond?

Answer: K T-10 = 6.4%; kC-10 = 8.4%; LP =?; DRP = ?

k = k* + IP + DRP + LP + MRP.

K T-10 = 6.4% = k* + IP + MRP; DRP = LP = 0.

K C-10 = 8.4% = k* + IP + DRP + LP + MRP.

But we know from above that k* + IP + MRP = 6.4%; therefore,

K C-10= 8.4% = 6.4% + LP + DRP
2%= LP + DRP.

K T-5 = 5.2% = k* + IP + MRP; DRP = LP = 0.

K C-5 = k* + IP + MRP + DRP + LP
= 5.2% + 2%
= 7.7%

Ample liquidity in credit markets will lead stocks higher today

Question: economics..help please!?

i'm currently taking an economics class & kind of struggling..just a couple questions i have about it. anyone can help me out thanks!

Answer: money is added to our economy through spending.
A liquidity crunch is a business condition that results in having too little cash and other current assets to be able to pay current liabilities as the liabilities mature. A liquidity crunch is a timing issue: not having enough liquidity can force you to make an emergency borrowing at a less than favorable interest rate.
Dividends are payments to the company by the shareholders.
Treasury bonds have lower rates to be more lucrative to buyers
A budget deficit is when the government spends more money than they are taking in.
A budget surplus is the opposite, the government is taking in a lot of money and is spending minimal.
the largest component of GDP is personal consumption

Wealthy Boomer Interviews Hank Cunningham, Fixed Income Strategist for Odlum Brown