A 2-year Treasury security currently earns 3.10 percent. Over the next two years, the real risk-free rate
Question:
A 2-year Treasury security currently earns 3.10 percent. Over the next two years, the real risk-free rate is expected to be 1.60 percent per year and the inflation premium is expected to be 0.60 percent per year. Calculate the maturity risk premium on the 2-year Treasury security.
NikkiG’s Corporation’s 10-year bonds are currently yielding a return of 7.00 percent. The expected inflation premium is 1.20 percent annually and the real risk-free rate is expected to be 2.40 percent annually over the next ten years. The liquidity risk premium on NikkiG’s bonds is 0.20 percent. The maturity risk premium is 0.35 percent on 4-year securities and increases by 0.06 percent for each additional year to maturity. Calculate the default risk premium on NikkiG’s 10-year bonds
Introduction to Finance Markets Investments and Financial Management
ISBN: 978-1118492673
15th edition
Authors: Melicher Ronald, Norton Edgar