I need the answer in 40 mins
So the given rate for the Tbond is just for comparison, there is no calculation need, isnt it?
Can I ask another question here or what else do I have to do to ask different question?
How do I create new post? Pls advice, 1st time using the service. Do I get charged for creating new post?
No problem, I will let you know.:) Yes when you create a new post you will have to decide an amount for it. Generally if there are many questions you can make a small amount and add the rest amount that we decide for all the questions as a bonus. At the answer window, you see the rate button. Once you click on the smileys and rate as good/excellent I get paid for the amount you have put for the post. Then you can also see the bonus button if we decide upon that.:)
Secondly to create a new post for me, you can use this link which will take you directly to me. http://www.justanswer.com/profile.aspx?PF=19873544&FID=8348
Please let me know if you have any more questions, I would love to help
I just rated ur services as excellent and send new questions. How do I expect for 3 more questions
But I already pay $60 and when I was sending out the new question it asked me to may another $60 thats why I havent sent it out. Doesnt it mean I already had to pay $120?
Suppose that several years from now the yield to maturity on a 2 year Treasury Note was 4.8% while the yield on a 1 year note was 5.2%. Assume that neither Treasury Note had coupon payment, so the only payment was the face value received when the note matureda) Why is it unusual for yields on longer term notes to be lower than yields on shorter term notes?b) What expectation would you lead a risk neutral investor to buy the 2 year note (instead of 1 year) given lower yield? (please involve specific number in explanation)
I need it in 30 mins...Ohhh I didnt now thats why I posted only 1 per post ;(. I have 2 more I will also copy and paste here if you need me to pay again for the other 2 just let me know and I will create new post requesting your services...Thank you Lisa. I need the answer in 30-60mins for each of them.
2. Suppose the CFO of an American corporation with surplus cash flow has $90 million to invest and the corporation does not believe it will need to utilize these fund to retool or expand production capacity for 1 year. Suppose further that the interest rate on 1 year CD deposit in US banks is 0.5% while the rate on 1 year CD deposits (denominated in Australia dollars) is currently 3%. Suppose further that the exchange rate currently is (0.9) Australian Dollars per US$.What must the CFO expect about the change in Australian Dollar/US $ exchange rate over the coming year if she chooses to invest in the Australian CDs instead of US CDs?That is, identify the risk that the CFO is taking from an "interest rate parity" theory of exchange rate equilibrium, and if possible give a specific numerical answer to the exchange rate which would make her decision to invest in the Australian CD produce an inferior outcome to simply investing in US CDs.
3. Assume that the bonds of highly leveraged ByHy corporation currently have a yield to maturity of 8% and are due to mature in 1 year. Meanwhile, assume that 1 year Treasury securities are yielding 1%. Also assume that investors expect that there is a 4% probability that ByHy corporation will default within the next year and that if it defaults they will only be able to recover 30% of the maturity value of the corporation's bonds.a)Suppose that several prominent highly leveraged corporations (other than ByHy) default on their bonds. What would you expect to happen to the price of ByHy bonds and why? (you need not give a numerical answer to this part...discuss the qualitative effects on ByHy's bonds' price of changes in expected and required rates of return)b)Assume that after the news of defaults by other highly leveraged corporations, investors now expect an 8% probability of default and a recovery rate of only 20% in the event of default on ByHy's bonds. Also assume that increased uncertainty about the future of the high yield market has caused the required rate of return on ByHy's bonds to change to 10%. What will be the new yield to maturity on ByHy's bonds?
Okay...Thank you...take your time!
Think I just added the bonus dont know it it gets through...Could you elaborate more on part b) for the last question on how did you get 10% as the yield to maturity for ByHy?
oh I see...Thank you Linda...nice chatting with you
Sorry but I have a similar question to the default problem "Suppose that 1 year treasuries were currently yielding 5%. Now suppose a particular corporation was assumed to have default probability of 8% during the coming year. Moreover assume that a potential investor in this corporation's bonds expects to be able to recover only 30% of the initial loan value if there is a default within the year. What would the investor's required yield to maturity be on this corporation's bonds if the investor required an expected rate of return on these bonds 2% higher than the expected rate of return on 1 year Treasuries?"
My Prof. gave the answer of 13.696% so I think the 4th question that you answered me is not correct...Could you please check? I can add bonus, I prefer asking the same tutor instead of opening a new one as I have to explain again
I would have been happy to help you but I am not sure how to solve this one. I am checking few concepts if I am able to get it then I will solve the question.
Thanks a lot! Please keep me updated on the progress. I think its needed to calculate the expected Cash Flows using the given default risk and recovery %. Then compare against the face value of the instrument to get the expected rate of return. Hope my idea helps!
The question your professor gave you. I am coming up with answer as 13.347%.Not sure what mistake I am making.
I dont have his whole solution just the final answer :( Could you please apply the method that you use to the fourth question that you got 10% earlier? Btw this is how I calculate required rate of return for a simple problem of default risk
For example a corporate bond
Face Value: 10,000 and yield to maturity 8%
--> Has ONLY 1 cash flow: 10,800 (in which 800 is coupon payment)
expected probability of default is 2%
recovery rate if default occur is 20% of Face Value
Expected Cash Flow: (0.98)*10,800 + (0.2)*2,000 = 10,624
then expected required rate of return would be: (10,624-10,000)/10,000 = 0.0624 --> 6.24 %
u meant the example and solution I just sent?