Question

5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond yields 6.1%, and a 10-year...

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 = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described. What is the yield on this 5-year corporate bond? Round your answer to one decimal place.

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Answer #1

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

SO FAR ALWAYS, THIS SUM WAS ASKED IN EXCEL FORMAT, SO PRESENTED IN EXCEL.

NEED ANY CHANGE, LET ME KNOW

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