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The real risk - free rate ( r * ) is 2 . 8 % and is expected to remain constant. Inflation is expected to
The real riskfree rate r is and is expected to remain constant. Inflation is expected to be per year for each of the next five years and thereafter.
The maturity risk premium MRP is determined from the formula: t where t is the securitys maturity. The liquidity premium LP on all BTR Warehousings bonds is The following table shows the current relationship between bond ratings and default risk premiums DRP:
Rating
Default Risk Premium
US Treasury
AAA
AA
A
BBB
BTR Warehousing issues tenyear, AArated bonds. What is the yield on one of these bonds? Disregard crossproduct terms; that is if averaging is required, use the arithmetic average.
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