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Expanded Interest Rate. The real risk-free rate is...

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Expanded Interest Rate. The real risk-free rate is 3 percent. Inflecation is expected to be 2 percent his year and 4 percent during the next two years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the year on 3 year Treasury securities? Default Risk Premium. The real risk-free rate, r*, is 2.5 perct a year for the next 4 years, after which time inflation is expected to average 3.75 percent a year. Assume that there is no maturity risk premium. An 8 year corporate bond has a yield of 8.3 percent, which include liquidity permium of 0.75 percent. What is the default risk premium? If your required rate of return were 12%, you should be willing to buy the bond at any price above $909. (Points: 6) True False The bond?s price is $974.42 and the YTM is 4.23%. (Points: 5) True False

 

Paper#8642 | Written in 18-Jul-2015

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