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Suppose the inflation rate is expected to be 7% next year, 5% the following year, and 3% thereafter. Assume that the real risk-free rate, r,

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Suppose the inflation rate is expected to be 7% next year, 5% the following year, and 3% thereafter. Assume that the real risk-free rate, r", will remain at 2% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1 -year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5 -year or longer-term T-bonds. a. Calculate the interest rate on 1,2,3,4,510, and 20 -year Treasury securities. Round your answers to two decimal places, Select the correct yleld curva based on these data. B 10= Interest Rate (\%) D 10 I Interest Rate (\%) premium on its long-term versus its short-term bonds.) The yield risk curve for the AAA-rated corporate bonds will the yield curve for the Treasury securities. E. What will be the approximate yiedd curve of a much riskier lower-rated company with a much higher risk of defaulting on ies bonds? The yield risk curve of a much riskier lower-rated compary will be the yield curve for the Treasury securities and the yied curve for the AAA-rated corporate bonds. Suppose the inflation rate is expected to be 7% next year, 5% the following year, and 3% thereafter. Assume that the real risk-free rate, r", will remain at 2% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1 -year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5 -year or longer-term T-bonds. a. Calculate the interest rate on 1,2,3,4,510, and 20 -year Treasury securities. Round your answers to two decimal places, Select the correct yleld curva based on these data. B 10= Interest Rate (\%) D 10 I Interest Rate (\%) premium on its long-term versus its short-term bonds.) The yield risk curve for the AAA-rated corporate bonds will the yield curve for the Treasury securities. E. What will be the approximate yiedd curve of a much riskier lower-rated company with a much higher risk of defaulting on ies bonds? The yield risk curve of a much riskier lower-rated compary will be the yield curve for the Treasury securities and the yied curve for the AAA-rated corporate bonds

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