A 5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond yields 6.95%, and a 10-year corporate bond yields 8.25%
Posted: Sun May 29, 2022 6:10 pm
A 5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond
yields 6.95%, and a 10-year corporate bond yields 8.25%. The market
expects that inflation will average 3.45% over the next 10 years
(IP10 = 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. What is the yield on this
5-year corporate bond? Round your answer to two decimal places.
yields 6.95%, and a 10-year corporate bond yields 8.25%. The market
expects that inflation will average 3.45% over the next 10 years
(IP10 = 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. What is the yield on this
5-year corporate bond? Round your answer to two decimal places.