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Trying to learn this concept. please help 6. (Determinants of Interest Rates for Individual Securities) Tom and Sue's Flowers Inc.'s 15 -year bonds are currently
Trying to learn this concept. please help
6. (Determinants of Interest Rates for Individual Securities) Tom and Sue's Flowers Inc.'s 15 -year bonds are currently yielding a return of 8.25 percent. The expected inflation premium is 2.25 percent annually and the real risk-free rate is expected to be 3.50 percent annually over the next 15 years. The default risk premium on Tom and Sue's Flowers's bonds is 0.80 percent. The maturity risk premium is 0.75 percent on 5 -year securities and increases by 0.04 percent for each additional year to maturity. Calculate the liquidity risk premium on Tom and Sue's Flowers Inc.'s 15 -year bonds. (Unbiased Expectations Theory) The current one-year Treasury-bill rate is 5.2 percent and the expected one-year rate 12 months from now is 5.8 percent. According to the unbiased expectations theory, what should be the current rate for a two-year Treasury security Step by Step Solution
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