Question

A 5-year Treasury bond has a 4.9% yield. A 10-year Treasury bond
yields 6.45%, and a 10-year corporate bond yields 8.2%. The market
expects that inflation will average 1.65% over the next 10 years
(IP_{10} = 1.65%). 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.

Open spreadsheet

What is the yield on this 5-year corporate bond? Round your answer to two decimal places.

%

Answer #1

**SEE THE IMAGE. ANY DOUBTS,
FEEL FREE TO ASK. THUMBS UP PLEASE**

A 5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond
yields 6.7%, and a 10-year corporate bond yields 9.6%. The market
expects that inflation will average 2.7% over the next 10 years
(IP10 = 2.7%). 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:...

A 5-year Treasury bond has a 3.5% yield. A 10-year Treasury bond
yields 6.4%, and a 10-year corporate bond yields 9%. The market
expects that inflation will average 3.3% over the next 10 years
(IP10 = 3.3%). 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:...

A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond
yields 6.1%, and a 10-year corporate bond yields 8.45%. The market
expects that inflation will average 3.75% over the next 10 years
(IP10 = 3.75%). 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:...

A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond
yields 6.4%, and a 10-year corporate bond yields 9.25%. The market
expects that inflation will average 3.3% over the next 10 years
(IP10 = 3.3%). 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:...

A 5-year Treasury bond has a 3.25% yield. A 10-year Treasury
bond yields 6.1%, and a 10-year corporate bond yields 8.5%. The
market expects that inflation will average 2.1% over the next 10
years (IP10 = 2.1%). 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:...

A 5-year Treasury bond has a 4.05% yield. A 10-year Treasury
bond yields 6.8%, and a 10-year corporate bond yields 9.8%. The
market expects that inflation will average 2.55% over the next 10
years (IP10 = 2.55%). 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:...

A 5-year Treasury bond has a 4.6% yield. A 10-year Treasury bond
yields 6.7%, and a 10-year corporate bond yields 9.9%. The market
expects that inflation will average 2.4% over the next 10 years
(IP10 = 2.4%). 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:...

A 5-year Treasury bond has a 4.4% yield. A 10-year Treasury bond
yields 6.85%, and a 10-year corporate bond yields 8.4%. The market
expects that inflation will average 1.5% over the next 10 years
(IP10 = 1.5%). 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:...

5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond
yields 6.1%, and a 10-year corporate bond yields 8.3%. The market
expects that inflation will average 2.4% over the next 10 years
(IP10 = 2.4%). 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...

Problem 6-17
Interest Rate Premiums
A 5-year Treasury bond has a 4.65% yield. A 10-year Treasury
bond yields 6.1%, and a 10-year corporate bond yields 8.8%. The
market expects that inflation will average 2.85% over the next 10
years (IP10 = 2.85%). 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...

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