Question
1)The real risk-free rate is 3.25%. Inflation is expected to be 1.5% this year and 4.75% during the next 2 years. Assume that the maturity
1)The real risk-free rate is 3.25%. Inflation is expected to be 1.5% this year and 4.75% during the next 2 years. Assume that the maturity risk premium is zero.
a)Whatistheyieldon2-yearTreasurysecurities?Donotroundintermediatecalculations.Roundyouranswertotwodecimalplaces.
- b)Whatistheyieldon3-yearTreasurysecurities?Donotroundintermediatecalculations.Roundyouranswertotwodecimalplaces.
- 2)ATreasurybondthatmaturesin10yearshasayieldof4.5%.A10-yearcorporatebondhasayieldof8.25%.Assumethattheliquiditypremiumonthecorporatebondis0.25%.Whatisthedefaultriskpremiumonthecorporatebond?Roundyouranswertotwodecimalplaces.
- 3)The real risk-free rate is 3%, and inflation is expected to be 3.75% for the next 2 years. A 2-year Treasury security yields 9.25%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.
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Calculus
Authors: Dale Varberg, Edwin J. Purcell, Steven E. Rigdon
9th edition
131429248, 978-0131429246
