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You observe a real interest rate of 1.1% and measure the liquidity premium at .40% and the default premium at .60%. You also equate the
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You observe a real interest rate of 1.1% and measure the liquidity premium at .40% and the default premium at .60%. You also equate the maturity risk premium to be equal to .125*(t-1)%. Future inflation rates to be 7% 6% 5% 4% 3% for years 1-5, an then remain steady at 2% long term. Estimate yields on a 10 year treasury bond and a 10 year corporate bond using info above. What is the corporate yield spread?
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