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The risk free rate of interest is 2.0%. Inflation is expected to be 2.0% this year, 2.5% next year and 3% in each of the

The risk free rate of interest is 2.0%. Inflation is expected to be 2.0% this year, 2.5% next year and 3% in each of the following years. Assume the liquidity premium is fixed at 0.5%; maturity risk premium is calculated to be .1% x (t-1); and default risk premium is fixed at 1.5% for years 1-5 and 2% for years 6-20. Calculate the rate for the following:

a) A 9 year bond?

b) A 2 year bond?

excel formulas if possible. thank you

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