Question: Can you please answer this two question THANK YOU Quantitative Problem: An analyst evaluating securities has obtained the following information. The real rate of interest
Can you please answer this two question THANK YOU
Quantitative Problem: An analyst evaluating securities has obtained the following information. The real rate of interest is 2.9% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.8% next year, 3.8% the following year, 4.8% the third year, and 5.8% every year thereafter. The maturity risk premium is estimated to be 0.1 x (t-1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Round your answer to one decimal place. b. What is the yield on a 5-year T-bond? Round your answer to one decimal place. c. What is the yield on a 5-year corporate bond? Round your answer to one decimal place. The real risk-free rate, r*, is 1.4%. Inflation is expected to average 1.3% a year for the next 4 years, after which time inflation is expected to average 4.3% a year. Assume that there is no maturity risk premium. An 11-year corporate bond has a yield of 11.4%, which includes a liquidity premium of 0.7%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places
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