Following is information about three bonds: ? ? Issuer Yield Time to Maturity Treasury 2.0% 6 months Company A 5.0 5 years Company B 5.3 8 years ? Although none of the bonds has a
liquidity premium, any bond with a maturity equal to one year or greater has a maturity risk premium (MRP). Except for their terms to maturity, the characteristics of the Company A and Company B bonds are the same (including their default risk). The average inflation rate is expected to remain constant during the next 10 years. What is the default risk premium (DRP) associated with the bonds issued by Company A and Company B?
A. 3.0%
B. 0.3%
C. 0.6%
D. 3.2%
E. 2.5%
Answer: E
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Answer the following statements true (T) or false (F)
1. When a company invests in equity securities with 20% to 50% ownership in the investee's voting stock, the investor can significantly influence the investee's decisions. 2. Investments accounted for by the equity method are recorded at cost at the time of purchase. 3. Significant influence equity investments must be accounted for using the equity method. 4. Under the equity method, the Equity Investments account is debited for the receipt of a dividend because the dividend increases the investee's equity.
Which of the following is not an example of an adjusting entry?
a. recognition of depreciation on equipment purchased during the year b. recording the expiration of a portion of the cost of prepaid insurance that was purchased during the previous year c. recognition of income tax expense on the net income earned during the period d. recording of collections received from customers during the period e. recognition of warranty expense on cars sold during the period
Subtracting nonoperating expenses from operating income yields:
a. income tax expense b. profit before income taxes c. net income d. gross profit e. none of the above
Reasoning about what should be done is known as ________ reasoning.
A. predictive B. objective C. practical D. theoretical