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Assume that the real risk-free rate is expected to remain constant at 3 percent, that inflation is expected to be 2 percent a year for
Assume that the real risk-free rate is expected to remain constant at 3 percent, that inflation is expected to be 2 percent a year for the next 3 years, and then 4 percent a year thereafter, and that the maturity risk premium is 0.1%(t-1), where t equals the maturity of the bond (for example, the maturity risk premium on a 5-year bond is 0.4 percent). A 5-year corporate bond has a yield of 8.4 percent. Determine the yield on a 7-year corporate bond that has the same default risk and liquidity premiums as the 5-year corporate bond. Answer in decimal format, to 4 decimal places. For example, if your answer is 25.22%, enter "0.2522
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