A corporate bond has a nominal interest rate of 12 percent. This bond is not very liquid

Question:

A corporate bond has a nominal interest rate of 12 percent. This bond is not very liquid and consequently requires a 2 percent liquidity premium. The bond is of low quality and thus has a default risk premium of 2.5 percent. The bond has a remaining life of 25 years resulting in a maturity risk premium of 1.5 percent.

a. Estimate the nominal interest rate on a Treasury bond.

b. What would be the inflation premium on the Treasury bond if investors required a real rate of interest of 2.5 percent?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...