Answer Happy

Now it's time for you to practice what you've learned. Suppose the real risk-free rate of interest is r* = 4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next 4 years and 3.80% per year for the next 6 years. The maturity risk premium is 0.1 x (t-1) %, where t is number of years to maturity, a liquidity premium is 0.35%, and the default risk premium for a corporate bond is 1.40%. Complete the following table by calculating yields on Treasury and corporate bonds of various maturity. Value The yield on a 5-year Treasury bond The yield on a 5-year corporate bond The yield on a 10-year Treasury bond The yield on a 10-year corporate bond Expected inflation in 11 years, if the yield on a 11-year Treasury bond is 8.10% 11