Question
Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 4.8 % yield. A 10-year Treasury bond yields 6.3%, and a
Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 4.8 % yield. A 10-year Treasury bond yields 6.3%, and a 10-year corporate bond yields 8.15%. The market expects that inflation will average 3.15% over the next 10 years (IP10 3.15%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet What is the yield on this 5-year corporate bond? Round your answer to two decimal places.. 0.05 % . about:blank Excel template - Saved O Search (Alt+Q) File Home Insert Draw Page Layout Formulas Data Review View Help Arial 10 B ~ Av ab B12 XVfx B C E G H 3 5-year Treasury yield (Ts) 4.80% 4 10-year Treasury yield (T10) 6.30% 5 10-year Corporate yield (C10) 8.15% 6 Inflation Premium over 10 years (IP 10) 3.15% 7 Maturity Risk Premium (MRP) 0.00% 8 DRP Treasury 0.00% + 9 LP Treasury 0.00% 10 DRPcs+ LPcs DRPC10 +LPC10 11 12 Real risk-free rate, r Formulas #N/A 13 14 Inflation premium over 5 years (IPs) #N/A 15 16 DRP+LP10 17 #N/A 18 5-year Corporate yield (C) 19 #N/A 20
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