Question
Nominal Interest is calculated as follows: NI = RI + IP + RP + LP + DP If the risk Free Rate is 2.0% and
Nominal Interest is calculated as follows: NI = RI + IP + RP + LP + DP If the risk Free Rate is 2.0% and for a seven year period, inflation is expected to be: 2%, 2.5%, 3.0%, 3.5%, 4%, 4.5% and 5%, the interest risk premium is .1% per year of maturity after year one, and the Default Premium is 2% and the Liquidity Premium is .8% for AAA rated Corporate securities. If the Default Premium is 2.25 and the Spread is 3.15% for a AA rated Corporate security: a. What would be the rate on a 7 year treasury bond? Blank 1. Fill in the blank, read surrounding text. % b. What would be the rate on 5 year AAA rated Corporate Bond? Blank 2. Fill in the blank, read surrounding text. % c. What would be the rate on 4 year AA rated Corporate Bond? Blank 3. Fill in the blank, read surrounding text. % d. What is the spread between a Treasury and a AAA Corporate Bond? Blank 4. Fill in the blank, read surrounding text. %. And a AAA Corporate Bond and a AA Corporate Bond? Blank 5. Fill in the blank, read surrounding text. %
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