The Wall Street Journal reports that the current rate on 9-year Treasury bonds i

Question

The Wall Street Journal reports that the current rate on 9-year Treasury bonds is 6.10 percent, the rate on 16-year Treasury bonds is 6.50 percent, and the rate on a 16-year corporate bond issued by MHM Corp. is 7.85 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on an 9-year corporate bond issued by MHM Corp. are the same as those on the 16-year corporate bond, calculate the current rate on MHM Corp.’s 9-year corporate bond. (Round your answer to 2 decimal places.) Current rate % The Wall Street Journal reports that the current rate on 9-year Treasury bonds is 6.10 percent, the rate on 16-year Treasury bonds is 6.50 percent, and the rate on a 16-year corporate bond issued by MHM Corp. is 7.85 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on an 9-year corporate bond issued by MHM Corp. are the same as those on the 16-year corporate bond, calculate the current rate on MHM Corp.’s 9-year corporate bond. (Round your answer to 2 decimal places.) Current rate % The Wall Street Journal reports that the current rate on 9-year Treasury bonds is 6.10 percent, the rate on 16-year Treasury bonds is 6.50 percent, and the rate on a 16-year corporate bond issued by MHM Corp. is 7.85 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on an 9-year corporate bond issued by MHM Corp. are the same as those on the 16-year corporate bond, calculate the current rate on MHM Corp.’s 9-year corporate bond. (Round your answer to 2 decimal places.) Current rate %

Explanation / Answer

For 16 year corporate bond:

7.85% = 6.50% + DRP + LRP + 0

DRP + LRP = 1.35%

For 9 year corporate bond:

Rate = 6.10% + 1.35%

Rate = 7.45%

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