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An analyst evaluating securities has obtained the following information. The real risk-free rate of interest is 2% and is expected to remain constant for the
An analyst evaluating securities has obtained the following information. The real risk-free rate of interest is 2% and is expected to remain constant for the next 5 years. Inflation is expected to 4% and is expected to remain constant for the next 5 years. The maturity risk premium is estimated to be 0.1*(t-1) % , where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.25% and the default risk premium on relevant 5-year securities is 0.6%. What is the yield on a 5-year corporate bond (rC5)?
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