Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 13 Jan 2018 My Price 5.00

real risk-free rate of return

Suppose that economists have determined that the real risk-free rate of return is 3 percent and that inflation is expected to average 2.5 percent per year long into the future. A one-year Treasury note offers a rate of return equal to 5.6 percent. You are evaluating two corporate bonds: (1) Bond A has a rate of return, rA, equal to 8 percent; (2) Bond B has a rate of return, rB, equal to 7.5 percent. Except for their maturities, these bonds are identical-Bond A matures in 10 year whereas Bond B matures in five years. You have determined that both bonds are very liquid, and thus neither bond has a liquidity premium. Assuming that there is an MRP for bonds with maturities equal to one year or greater, compute the annual MRP. What is the DRP associated with corporate bonds?

 

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Maurice Tutor
(5)
Status NEW Posted 13 Jan 2018 07:01 PM My Price 5.00

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