Economists expect that the nominal risk-free rate of return, r RF , on one-year Treasury bonds will

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Economists expect that the nominal risk-free rate of return, rRF, on one-year Treasury bonds will be 2.4 percent long into the future. General Machinery’s (GM) one-year bond has a yield equal to 4.8 percent. The yield on the GM bond includes a liquidity premium equal to 0.3 percent. Suppose the maturity risk premium (MRP) for all bonds with maturities greater than one year is 0.15 percent per year. Based on this information, what should be the yield on GM’s five-year bonds?

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...
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CFIN

ISBN: 978-1305666870

5th edition

Authors: Scott Besley, Eugene Brigham

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