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6 - 1 7 INTEREST RATE PREMIUMS A 5 - year Treasury bond has a 5 . 2 % yield. A 1 0 - year
INTEREST RATE PREMIUMS A year Treasury bond has a yield. A year Treasury bond yields and a year corporate bond yields The market expects that inflation will average over the next years
IP
Assume that there is no maturity risk premium
MRP
and that the annual real riskfree rate,
r
will remain constant over the next years. Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities:
DRP
LP
A year corporate bond has the same default risk premium and liquidity premium as the year corporate bond described. What is the yield on this year corporate bond?
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