On Feb 14th, an analyst evaluating securities base on following information. The real risk-free rate is 3% and is expected to be constant for next 30 years. Inflation is expected to be 5% next year, 6% the following fyear, and 8% thereafter. The maturity risk premium is estimated to be 0.1*(t-1%, where t = number of years to maturity. The liquidity premium on relevant 3-year security is 0.25% and the default risk premium on relevant 3- year security is 0.6% Question: What's the vield on a 3-year corporate bond? I Question3. What if I change the question to "The risk-free rate is 3% and is expected to be 8% next vear. 8.5% the following year and 11.7% the third year and ......"? Extra thinking: Could the Corp bond have low rate compare to the gov bond? Why? Information that you might need: IP DRP LP MRP S-T Treasury L-T Treasury S-T Corporate L-T Corporate Premiums Added to r* for Different Types of Debt