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MMM Inc. planning issue bonds maturing in 5-years. The real risk-free rate is 3.00%, the inflation is expected to be 1.25% first year, 1.50% second
MMM Inc. planning issue bonds maturing in 5-years. The real risk-free rate is 3.00%, the inflation is expected to be 1.25% first year, 1.50% second year,2% third year,3% fourth and 2% fifth year. the liquidity premium for MMM's bonds is LP=0.75% versus zero for T-bonds and the maturity risk premium for all bonds is found with the formula MRP=(t-1)^0.1%, where t = number of years to maturity and the default risk premium (DRP) on MMM's bonds 0.75%.
what is the required rate of return on this bond?(round to 2 dp)
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