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(Interest rate determination) You're looking at some corporate bonds issued by Ford, and you are trying to determine what the nominal interest rate should be
(Interest rate determination) You're looking at some corporate bonds issued by Ford, and you are trying to determine what the nominal interest rate should be on them. You have determined that the real risk-free interest rate is 2.9%, and this rate is expected to continue on into the future without any change. In addition, inflation is expected to be constant over the future at a rate of 3.3%. The default-risk premium is also expected to remain constant at a rate of 2.1%, and the liquidity-risk premium is very small for Ford bonds, only about 0.02%. The maturity-risk premium is dependent upon how many years the bond has to maturity. The maturity-risk premiums are shown in the popup window: E. Given this information, what should the nominal rate of interest on Ford bonds maturing in 0-1 year, 1-2 years, 2-3 years, and 3-4 years be? The nominal rate of interest on Ford bonds maturing in 0-1 year should be %. (Round to two decimal places.) The nominal rate of interest on Ford bonds maturing in 1-2 years should be %. (Round to two decimal places.) The nominal rate of interest on Ford bonds maturing in 2-3 years should be %. (Round to two decimal places.) (Click on the following icon in order to copy its contents into a spreadsheet.) BOND MATURES IN: MATURITY-RISK PREMIUM: 0-1 year 0.07% 1-2 years 0.25% 0.70% 0.20% 2-3 years 3-4 years
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