Corporate Bonds

Archive for the ‘Corporate Bond Investing’ Category

Question: Need help with allocating 401K funds?

I don't know anything about 401K and was given a form to complete. I was thinking of contributing 5% of my salary but there are several investment options to choose from...I need help in finding out where to put it all...I don't know nothing about Funds....Can someone help me? Here are my options - what is going to get me the best for my buck?

Answer: Take it to a certified financial planner. You will get many opinions on here.

Investors Embracing REITs' Yields - Fidelity's Snyderman on REIT Advantages in Today's Market

Question: Can someone help me solve the following?

A company's 5-year bonds are yeilding 7.75% per year. The Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is 2.3%. The average inflation premium is 2.5%; and the maturity risk premium is estimated to be 0.1 x (t-1)%, where t = number of years to maturity. If the liquidity premium is 1%. What is the default risk premium on the Corporate Bonds.

Answer: Treasury bonds doesn't matter for this method/case, so just ignore it.
Assuming current rates represent risk-free rate plus sum of premiums and using simplified summation:
RE = RiskFree + Inflation + Maturity + Default + Liquidity
RE% = r* + π +MP+DP+LP = 2.3+2.5+(0.1(5-1))+DP+1 = 6.2%+DP
RE%=7.75%
7.75=DP+6.2
7.75 - 6.2 = DP
DP = 1.55%

Answ: Default risk premium on the Corporate Bonds is ≈ 1.55%

Investopedia Video: Introduction To Bonds