Problem 6-9 Expected Interest Rate

The real risk-free rate is 3.35%. Inflation is expected to be 2% this year, 4.9% next year, and then 2.1% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, wheret = number of years to maturity. What is the yield on a 7-year Treasury note? Round your answer to two decimal places.

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Problem 6-11 Default Risk Premium

A company's 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 6.8% per year, and the real risk-free rate (r*) is 2.65%. The average inflation premium is 3.75%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.75%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

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