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problem A) You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.2%. Your brother-in-law, a broker at Safe and Sound Securities,
problem A)
You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.2%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:
Inflation premium = 3.00%
Liquidity premium = 0.8%
Maturity risk premium = 1.55%
Default risk premium = 2.60%
On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.
__ %
problem B)
A Treasury bond that matures in 10 years has a yield of 6.00%. A 10-year corporate bond has a yield of 8.75%. Assume that the liquidity premium on the corporate bond is 0.35%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
__ %
please answer both parts
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