Determinants of Interest Rates

Using the following DATA:

R*= 2.5000%

I₁ = 6.0000%

I₂ = 4.0000%

I₃₌ 3.0000%

MRP = .20% ( t - 1) (NOTE: This is a PERCENTAGE, not a DECIMAL MRP!) t = number of years to maturity

DRP = 5.4000%

LP = 1.5000%

CALCULATE:

8 year TREASURY BOND RATE

5 year CORPORATE BOND RATE