On Jan 1st, 2000, the real risk-free rate is 2% and is expected to be constant for next 20 years. Inflation is expected to be 7% next year, 5% the following year, and 3% thereafter. The maturity risk premium is estimated to be 0.2*(t -1) % and up to 1%. (t = number of years to maturity). Please estimate the term structure of US treasury. Draw the yield curve on Jan 1st, 2000 and what’s the expected yield curve on Corporate bond? (show the trend and position only)

Answer rating: 100% (QA)

Date Real Rate Inflation Risk Premium Interest Rate Interest ... View the full answer