Assets and Interest Rates - Coursework Example

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Assets and Interest Rates

The higher the credit rating, the lower will be the spread between the US treasury yield and the interest rate of the corporate bond. Here we will assume that the credit rating of the company is AAA. So for a one year bond the rate will be US treasury yield plus 14 basis points. The interest rate will be 4.74 plus 0.14 i.e. 4.88%. Similar will be the calculation for an asset which is 5 year in length. The interest rate will be 5.03% (4.63 plus 40 basis points). For calculating the yield of an asset which is 15 year in length, we will use the rate of the closest matching maturity. 2. Discuss how the interest rate will be impacted if the bond is a government bond or a corporate bond.  A government bond is issued and backed by the government while a corporate bond is issued by businesses to raise money for business expenses such as expansions. ...Show more

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Rating 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 30 yr Aaa/AAA 4.88 4.87 4.95 5.03 5.16 5.27 5.46 Aa1/AA+ 4.96 5.01 4.99 5.11 5.24 5.36 5.55 Aa2/AA 4.98 5.08 5.07 5.17 5.27 5.39 5.59 Aa3/AA- 4.99 5.1 5.08 5.21 5.31 5.4 5.65 A1/A+ 5.17 5.19 5.2 5.28 5.39 5.52 5.73 A2/A 5.2 5.22 5.22 5.3 5.41 5.54 5.77 A3/A- 5.24 5.25 5.25 5.35 5.44 5.57 5.8 Baa1/BBB+ 5.36 5.43 5.48 5.55 5.81 6 6.26 Baa2/BBB 5.39 5.51 5.56 5.6 5.88 6.1 6.33 Baa3/BBB- 5.46 5.56 5.58 5.65 5.94 6.18 6.39 Ba1/BB+ 6.59 6.66 6.73 6.78 6.95 7.14 7.31 Ba2/BB 6.69 6.76 6.83 6.88 7.05 7.24 7.41 Ba3/BB- 6.79 6.86 6.93 6.98 7.15 7.34 7.51 B1/B+ 7.39 7.46 7.53 7.78 8.15 8.54 9.01 B2/B 7.49 7.56 7.63 7.88 8.25 8.64 9.11 B3/B- 7.59 7.66 7.73 7.98 8.35 8…
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