Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 4.35% yield. A 10-year Treasury bond yields 6.05%, and a 10-year
Video Excel Online Structured Activity: Interest rate premiums A 5-year Treasury bond has a 4.35% yield. A 10-year Treasury bond yields 6.05%, and a 10-year corporate bond yields 8.3%. The market expects that inflation will average 3.45% over the next 10 years (IP20 = 3.45%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. . X Open spreadsheet What is the yield on this 5-year corporate bond? Round your answer to two decimal places. Check My Work Reset Problem B D E 1 4.35% 6.05% 8.30% 3.45% 0.00% 0.00% 0.00% A Interest rate premiums 2 3 5-year Treasury yield (T3) 4 10-year Treasury yield (T 10) 5 10-year Corporate yield (C10) 6 Inflation Premium over 10 years (IP 10) 7 Maturity Risk Premium (MRP) 8 DRP Treasury 9 LP Treasury 10 DRPCs + LPcs = DRPC10 + LPC10 11 12 Real risk-free rate, r* 13 14 Inflation premium over 5 years (IP3) 15 16 DRP 10 + LP 10 17 18 5-year Corporate yield (C3) 19 20 Formulas #N/A #N/A #N/A #N/A
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started