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Question;The real risk-free rate;of interest is 3 percent. Inflation;is expected to be 2 percent this year and 4 percent during the next 2;years. Assume that the maturity;risk premium is zero. What is the;yield on 3-year Treasury securities?The real risk-free rate;is 2.5%. Inflation is expected to;average 2.8% a year for the next 4 years, after which time inflation is;expected to average 3.75% a year.;Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of;8.3%. Assume that the liquidity;premium on the corporate bond is 0.75%.;What is the default risk premium on the corporate bond;3.;The;real risk free rate is 3%, and inflation is expected to be 3.5% for the next 2;years. A 2 year treasury security yields;6.8%. What is the maturity risk premium;for the 2 year security?;4.;The;real risk free rate is 4%. Inflation is;expected to be 3% this year, 4% next year, and then 2% for the following 2;years. Assume that the maturity risk;premium is 0. What is the yield on 2;year Treasury securities? What about 4;year treasury securities55You read in The Wall;Street Journal that 30-day T-bills are currently yielding 5.5%. Your brother-in-law, a broker at Safe;and Sound Securities, has given you the following estimates of current;interest rate premiums;Inflation;premium= 3.25%;Liquidity;premium= 0.6%;Maturity risk premium=;1.8%;Default risk;premium= 2.15%;On the basis of;these data, what is the real risk-free rate of return?


Paper#51008 | Written in 18-Jul-2015

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