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Assume that r = 10%; the maturity risk premium is found as MRP = 02%(t - 1) where t years to maturity; the default risk
Assume that r = 10%; the maturity risk premium is found as MRP = 02%(t - 1) where t years to maturity; the default risk premium for AT&T bonds is found as DRP = 007%(t - 1) the liquidity premium is 0.50% for AT&T bonds but zero for Treasury bonds and inflation is expected to be 7%, 6%, and 5% during the three years and then 4% thereafter. What is the difference in interest rates between and 10-year AT&T bonds and 10-year Treasury bonds? 0 063% 0.25% 1.13% 0.50% 1.00%
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