6. Assume that market expects the Inflation rate to be 3% next two years, 6% later year and 7% thereafter. The risk free
Posted: Tue Nov 16, 2021 7:39 am
- 6 Assume That Market Expects The Inflation Rate To Be 3 Next Two Years 6 Later Year And 7 Thereafter The Risk Free 1 (64.5 KiB) Viewed 96 times
6. Assume that market expects the Inflation rate to be 3% next two years, 6% later year and 7% thereafter. The risk free rate is 2% whereas the maturity risk is zero for bonds with maturity in 1 year or less and 0.2% for more than 1 year bonds and then this MRP increases by 0.1% every year thereafter till 15 years. What should be the return on bonds with maturity of 1 year, 10 years and 15 years bonds? Draw and explain why the constructed yield curve is upward-sloping?