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Economists at your company predict the following expected inflation rates: 2% at t=1;2.3% at t=2; 3.5%...
the real risk-free rate is 3%. inflation is expected to be 2% a year for 3 years, and then 4% a year thereafter. The maturity risk premium is 0.1(t-1)%, where t equals the maturity of the bond. That is, the maturity risk premium on a 5-year bond is 0.004 or 4%. A 5-year corporate bond has a yield of 8.4%. What is the yield on a 7-year corporate bond that has the same default risk and liquidity premiums as the...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1), 4.2% (Year 2), and 4.6% thereafter. The maturity risk premium (MRP) is equal to 0.079(t-1)%, where t-the bond's maturity. A 4-year corporate bond yields 8%, what is the yield on a 10-year corporate bond that has the default risk and liquidity premiums 1% higher than that of the 4-year corporate bond? The real risk-free rate of interest...
The real risk-free rate, r*, is 1.8%. Inflation is expected to average 3.5% a year for the next 4 years, after which time inflation is expected to average 4.65% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 9.15%, which includes a liquidity premium of 0.9%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.
The real risk-free rate of interest is expected to remain constant at 4%. Inflation is expected to be 6% this year, 5% next year and 4% per year thereafter. The maturity risk premium (MRP) is equal to 0.1(t-1)%, where t = the bond’s maturity. A 5-year corporate bond yields 9%. What is the yield on a 10-year corporate bond that has the same default risk and liquidity premiums as the 5-year corporate bond?
Suppose the inflation rate is expected to be 2% next year, 3% the following year, and 5% thereafter. Assume that the real risk free rate will remain constant at 1% and that MRP = (0.25x(t-1))% where t is the number of years to maturity. The default risk premium on 5 year corporate bonds is 0.75% and the liquidity premium on 5 year corporate bonds is 0.25%. a. Calculate the interest rate on a 5 year treasury security. b. Calculate the...
The real risk-free rate is 2%, and inflation is expected to be 3% this year, 4% in year 2, 5% in year 3 and then 3.5% thereafter. The maturity risk premium is estimated to be 0.50x(t-1), where t=number of years to maturity. What is the nominal interest rate on a 15-year Treasury security?
QUESTION 13 Assume that 1-year T-bills currently yield 5.00% and the future inflation rate is expected to be constant at 2.0% per year. What is the real risk-free rate of return, r"? 6.50% 5.00% 4 50% 4004 3.00% QUESTION 14 Suppose 10-year T-bonds have a yield of 4.00% and 10-year corporate bonds yield 6.50%. Also, corporate bonds have a 0.50% liquidity premium versus a zero iquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year...
1- Due to a recession, expected inflation this year is only 4.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 4.25%. Assume that the expectations theory holds and the real risk-free rate (r*) is 3.5%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 2.0%, what inflation rate is expected after Year 1? Round your answer to two decimal places. 2- The real risk-free rate is 3.5%...
3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 5% per year for each of the next two years and 4% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 1)%, where t is the security's maturity. The liquidity premium (LP) on all Harrington Horticulture Co.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums...
6-3: The Determinants of Market Interest Rates Expected Interest Rate The real risk-free rate is 3.5%. Inflation is expected to be 296 this year and 4.75% during the next 2 years. Assume that the maturity risk premium is zero. a. What is the yield on 2-year Treasury securities? Round your answer to two decimal places. places