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The real risk-free rate of interest is 4%. The maturity risk premium (MRP) is equal to 0.1(t-1)%, and the default risk premium (DRP) is equal
The real risk-free rate of interest is 4%. The maturity risk premium (MRP) is equal to 0.1(t-1)%, and the default risk premium (DRP) is equal to 0.05(t-1)%, where t = the bonds maturity. The liquidity premium is 0.8% for corporate bonds. Inflation rates for the next 3 years are expected to be 4%, 3%, and 4.5%; and 5% per year thereafter. What is the difference in interest rates between 10-year corporate bonds and TBonds?
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