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Use the following data to answer questions 7 9 r* = 5% IP (1 year bonds) = 3.25% IP (3 year bonds) = 3.60% IP
Use the following data to answer questions 7 9
r* = 5%
IP (1 year bonds) = 3.25%
IP (3 year bonds) = 3.60%
IP (5 year bonds) = 4.15%
DRP (AAA corporate bonds) = 0.35%
DRP (AA+ corporate bonds) = 0.40%
LP (AAA corporate bonds) = 0.17%
LP (AA+ corporate bonds) = 0.22%
MRP = 0.1% x (t-1) where t is the number of years to maturity
7. Calculate the interest rate for a 3-year AA+ corporate bond.
8. Calculate the interest rate for a 5-year AAA corporate bond.
9. Calculate the interest rate for a 5-year Treasury security
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