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1 . Keys Corporation's 5 - year bonds yield 6 . 5 0 % , and 5 - year T - bonds yield 4 .
Keys Corporation's year bonds yield and year Tbonds yield The real riskfree rate is r the liquidity premium for Keys' bonds is LP versus zero for Tbonds, and the maturity risk premium for all bonds is found with the formula MRP t where t number of years to maturity. Answer the following questions:
What is the inflation premium IP for year bonds? points
What is the default risk premium DRP on Keys' bonds? points
For each selected day, compare the nominal and real yields at the following maturities: years, years, years, years, and years.
A Based on the formula rnominal rreal i calculate the rates of inflation on these five days at the abovementioned maturities. points
Note: Only the abovementioned maturities are considered for real yield curves.
B Draw the daily inflation rate curves five curves on a scatter plot. points
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