Question
A.) The real risk-free rate is 2.25%. Inflation is expected to be 2.5% this year and 4.5% during the next 2 years. Assume that the
A.) The real risk-free rate is 2.25%. Inflation is expected to be 2.5% this year and 4.5% during the next 2 years. Assume that the maturity risk premium is zero.What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.
B.) A Treasury bond that matures in 10 years has a yield of 4.75%. A 10-year corporate bond has a yield of 9.75%. Assume that the liquidity premium on the corporate bond is 0.35%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
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