Questions: CON 3035 2711 Fall 2 Session 2024 Quiz: Week 2 Quiz Question 18 of 20 This quiz: 20 points possible This question: 1 point(s) possible Yields for the following 10-year corporate bonds are listed in the table below along with their Moody's bond rating. 10-year Corporate Bond, Reference Number Moody's Rating Yield (% annually) 1 C 8.50% 2 Baa 7.45% 3 Ca 7.75% 4 A 4.60% If the yield on a 10-year T-note is 4.00%, what is the risk premium on bond #4? The risk premium is %. (Round your response to two decimal places.) What is a likely range of yields for a 10-year corporate bond with a Ba rating? The minimum yield is % and the maximum yield is %. (Round your responses to two decimal places.) Time Remaining: 00:08:47

Let's address the questions one by one.

The risk premium is calculated as the difference between the yield on the corporate bond and the yield on a comparable risk-free bond, such as a 10-year Treasury note (T-note).

Given:

• Yield on bond #4 (A rating) = 4.60%
• Yield on 10-year T-note = 4.00%

Risk Premium = Yield on bond #4 - Yield on 10-year T-note Risk Premium = 4.60% - 4.00% = 0.60%

The risk premium on bond #4 is 0.60%.

To estimate the likely range of yields for a 10-year corporate bond with a Ba rating, we can look at the yields of bonds with ratings close to Ba. In the given table, we have bonds with the following ratings and yields:

• Bond #2 (Baa rating) = 7.45%
• Bond #3 (Ca rating) = 7.75%

Since Ba is between Baa and Ca, we can infer that the yield for a Ba-rated bond would likely fall between these two yields.

Therefore:

• Minimum yield for Ba rating = 7.45%
• Maximum yield for Ba rating = 7.75%

The minimum yield is 7.45% and the maximum yield is 7.75%.

1. The risk premium on bond #4 is 0.60%.
2. The likely range of yields for a 10-year corporate bond with a Ba rating is:
   • Minimum yield: 7.45%
   • Maximum yield: 7.75%