A 10-year long-term corporate bond yields 17.5%. The real risk-free rate is 4% which is projected to be constant throughout. The expected inflation for year 1 is 1%, for year 2 is 2%, for year 3 is 3%, and this will increase by 1% each year after. The default risk premium is twice the liquidity premium and they will remain constant regardless of the number of years of the maturity. Maturity risk premium is 5%. What is the yield of the long-term 12-year government bond? (In percentage)
A 10-year long-term corporate bond yields 17.5%. The real risk-free rate is 4% which is projected to be constant throughout. The expected inflation for year 1 is 1%, for year 2 is 2%, for year 3 is 3%, and this will increase by 1% each year after. The default risk premium is twice the liquidity premium and they will remain constant regardless of the number of years of the maturity. Maturity risk premium is 5%. What is the yield of the long-term 12-year government bond? (In percentage)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A 10-year long-term corporate bond yields 17.5%. The real risk-free rate is 4% which is projected to be constant throughout. The expected inflation for year 1 is 1%, for year 2 is 2%, for year 3 is 3%, and this will increase by 1% each year after. The default risk premium is twice the liquidity premium and they will remain constant regardless of the number of years of the maturity. Maturity risk premium is 5%.
What is the yield of the long-term 12-year government bond? (In percentage)
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