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please anwser both questions**** The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year
please anwser both questions****
The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year for each of the next three years and 5% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t 1)%, where t is the security's maturity. The liquidity premium (LP) on all Rinsemator Group's bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury 0.60% 0.80% 1.05% 1.45% Rinsemator Group issues 10-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average O 9.80% O 5.05% O 9.45% o 10.35%Step by Step Solution
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