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Suppose the real risk-free rate is 1.2%, the average future inflation rate is 3.4%, a maturity premium of 0.05% per year to maturity applies, i.e.,
Suppose the real risk-free rate is 1.2%, the average future inflation rate is 3.4%, a maturity premium of 0.05% per year to maturity applies, i.e., MRP = 0.05%(t), where t is the years to maturity. Suppose also that a liquidity premium of 0.7% and a default risk premium of 0.7% applies to A-rated corporate bonds. How much higher would the rate of return be on a 8-year A-rated corporate bond than on a
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