Question
A company's 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are yielding 5.8% per year, and the real risk-free rate
A company's 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are yielding 5.8% per year, and the real risk-free rate (r*) is 3.05%. The average inflation premium is 2.35%, and the maturity risk premium is estimated to be 0.1 (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.5%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
One-year Treasury securities yield 3.55%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 4.3%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.
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