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7) What is meant by default risk and a default risk premium? 8) Assume investors expect a 2.0% real rate of return over the next
7) What is meant by default risk and a default risk premium? 8) Assume investors expect a 2.0% real rate of return over the next year. If inflation is expected to be 0.5%, what is the expected market interest rate for a one-year U.S. Treasury security? 9) A 20-year U.S. Treasury bond has a 3.50% interest rate, while a same maturity corporate bond has a 5.25% interest rate. Real interest rates and inflation rate expectations would be the same for the two bonds. If a default risk premium of 1.50 percentage points is estimated for the corporate bond, determine the liquidity premium for the corporate bond
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