Question
our online investing portal provides you with the following information: 30-day T-bills are currently yielding 3%; 1-year T-bonds are currently yielding 3.6%; the inflation premium
our online investing portal provides you with the following information: 30-day T-bills are currently yielding 3%; 1-year T-bonds are currently yielding 3.6%; the inflation premium is estimated at 0.75% for all bonds maturing during the next year; the liquidity premium for corporate bonds is 0.8%; the default risk premium for the highest rated corporate bonds is 1% and increases to 1.75% for AA-rated bonds and 2.25% for any A or BBB-rated corporate bonds. Using this information, what is the expected yield for a 1-year BBB-rated corporate bond?
A. 8.1%
B 7.2%
C 6.75%
D 6.65%
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