Question
The real risk-free rate, r*, is 2%, and inflation is expected to be 3.0% this year, 3.5% for the next two years; 4.0% the following
The real risk-free rate, r*, is 2%, and inflation is expected to be 3.0% this year, 3.5% for the next two years; 4.0% the following year, and then 5.0% thereafter. The maturity risk premium is estimated to be 0.05%(t1), where t = number of years to maturity. Liquidity risk premium is 0.7%, default risk premium is 1%.
- What are the Treasury yield for 3 years, and 6 years bonds?
- What are the Corporate yield for 3 years, and 6 years bonds?
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Financial Markets And Institutions
Authors: Jeff Madura
13th Edition
0357130790, 978-0357130797
