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Suppose the real risk - free rate is 3 . 5 0 % , the average future inflation rate is 2 . 5 0 %
Suppose the real riskfree rate is the average future inflation rate is a maturity premium of per year to maturity applies, ie where is the number of years to maturity. Suppose also that a liquidity premium of and a default risk premium of applies to Arated corporate bonds. What is the difference in the yields on a year Arated corporate bond and on a year Treasury bond? Here we assume that the pure expectations theor is NOT valid, and disregard any crossproduct terms, ie if averaging is required, use the arithmet average. a pp b pp c pp d pp e pp
Suppose the real riskfree rate is the average future inflation rate is a maturity premium of per year to maturity applies, ie where is the number of years to maturity. Suppose also that a liquidity premium of and a default risk premium of applies to Arated corporate bonds. What is the difference in the yields on a year Arated corporate bond and on a year Treasury bond? Here we assume that the pure expectations theor is NOT valid, and disregard any crossproduct terms, ie if averaging is required, use the arithmet average.
a pp
b pp
c pp
d pp
e pp
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