A fixed income analyst has made the following assessments: The risk-free rate is expected to remain at 2.5% for the next 10 year. Inflation is expected to be 3% this year, 4% next year and 5% a year thereafter. The maturity risk-premium is 0.1% (t-1), where t= maturity of the bond. A 5-year corporate bond currently yield 8.5 percent. What will be the yield on the bond one year from now, if the above assessments are correct, and the bond's default premium and liquidity premium remain unchanged?
A fixed income analyst has made the following assessments: The risk-free rate is expected to remain at 2.5% for the next 10 year. Inflation is expected to be 3% this year, 4% next year and 5% a year thereafter. The maturity risk-premium is 0.1% (t-1), where t= maturity of the bond. A 5-year corporate bond currently yield 8.5 percent. What will be the yield on the bond one year from now, if the above assessments are correct, and the bond's default premium and liquidity premium remain unchanged?
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 fixed income analyst has made the following assessments:
- The risk-free rate is expected to remain at 2.5% for the next 10 year.
- Inflation is expected to be 3% this year, 4% next year and 5% a year thereafter.
- The maturity risk-premium is 0.1% (t-1), where t= maturity of the bond.
A 5-year corporate bond currently yield 8.5 percent. What will be the yield on the bond one year from now, if the above assessments are correct, and the bond's default premium and liquidity premium remain unchanged?
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