Inc.'s 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.6%. The real risk-free rate is 2.75%, the default risk premium for Crockett's bonds is DRP = 1.35% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 0.90% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) × 0.1%, where t = number of years to maturity. What inflation premium (IP) is built into 5-year bond yields?
Inc.'s 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.6%. The real risk-free rate is 2.75%, the default risk premium for Crockett's bonds is DRP = 1.35% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 0.90% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) × 0.1%, where t = number of years to maturity. What inflation premium (IP) is built into 5-year bond yields?
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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Inc.'s 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.6%. The real risk-free
rate is 2.75%, the default risk premium for Crockett's bonds is DRP = 1.35% versus zero for T-bonds, the
liquidity premium on Crockett's bonds is LP = 0.90% versus zero for T-bonds, and the maturity risk
premium for all bonds is found with the formula MRP = (t – 1) × 0.1%, where t = number of years to
maturity. What inflation premium (IP) is built into 5-year bond yields?
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