A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 7%, and a...

A 5-year Treasury bond has a 3.7% yield. A 10-year Treasury bond yields 7%, and a 10-year corporate bond yields 8.5%. The market expects that inflation will average 3% over the next 10 years (IP₁₀ = 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: 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 two decimal places.

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

jeff jeffy answered 2 years ago

A 5-year Treasury bond has a 4.8% yield. A 10-year Treasury bond yields 6.95%, and a...

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A 5-year Treasury bond has a 4.75% yield. A 10-year Treasury bond yields 6.05%, and a...

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Suppose currently 10-year Treasury bond yields 1.2% and 10-year municipal bond offers 0.8% yield. Also, your...

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