Question: Assume that a highly liquid market does not exist for long-term T-bonds, and the expected rate of inflation is a constant. The conditions, the nominal

You are given the following data: r* = real risk-free rate Constant

Assume that a highly liquid market does not exist for long-term T-bonds, and the expected rate of inflation is a constant. The conditions, the nominal risk-free rate for T-bills is?

The rate on long-term Treasury bonds is?

You are given the following data: r* = real risk-free rate Constant inflation premium Maturity risk premium Default risk premium for AAA bonds Liquidity premium for long-term T-bonds = 4% = 7% = 1% = 3% = 2%

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