Corporate Bonds

Posts Tagged ‘bonds’

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: What goes up and what comes down when the fed raises interest rates?

What goes up and what comes down? Gold, Oil, The $, Bonds (all sorts-municipal, corporate, etc.), Stocks (in general) and other things that hold monetary value.

Answer: Gold down/up
Oil down/up
Bonds up
Stocks up or down

^ the above all matter on the term of the economy but lets assume all factors are constant then this would happen

Gold - Down
Oil - Down
Bonds - Up
Stocks - up or down depending on sector

when interest rates are low people fear for inflation so they run to the commodity's

Long Term Bonds? Low Interest Rates...Fixed income