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please show work!!! thank you so much!! Niendorf Corporation's 5-year bonds yield 11.25%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* =
please show work!!! thank you so much!!
Niendorf Corporation's 5-year bonds yield 11.25%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% 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. What is the liquidity premium (LP) on Niendorf's bonds? Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 6.40%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.40% for a 2-year bond. What is the yield on a 1-year T-bond expected to be one year from now? Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places Step by Step Solution
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