Question
Use the following information to calculate the interest rate on an eight-year bond just issued by Becher Inc. Inflation: next two years= 2% year 3
Use the following information to calculate the interest rate on an eight-year bond just issued by Becher Inc.
Inflation:next two years= 2%
year 3 and beyond = 4%
Pure/Real Risk Free Rate= 2%
Maturity Risk Premium= zero for a 1-year maturity, increasing by .1% each year thereafter
Default Risk Premium= 1.5%
Liquidity Risk Premium= 0.0% for treasuries; 0.5% for Corporate bonds
Part 1:The inflation premium is:
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
13th edition
978-1285027371, 128502737X, 978-1133541141
