15. Assume that today, the annualized one-year interest rate is 8 also know thar

Question

15. Assume that today, the annualized one-year interest rate is 8 also know thar o percent One adjustment, and percent. A two-year security has an annualized percent. One year from now, you are planning to sell the I-year commercial paper to investors also know that the liquidity premium for your company is estimated to be 0.4 pereent, there aercial paper the appropriate default premium is 1 percent. Find the yield of your future (Hint: I-year risk-free rate equals to I-year forward rate minus I percent)

Explanation / Answer

One year forward rate = 1.09^2/1.08 - 1

one year forward rate = 10.01%

yield on the future commercial paper = 10.01% + 0.4% + 0.5% +1% = 11.91%

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.