Question: Please answer quickly for a like 32 Drongo Corporation's 4-year bonds currently yield 8.6 percent and have an inflation premium of 3.9%. The real risk-free

Please answer quickly for a like
32 Please answer quickly for a like 32 Drongo Corporation's 4-year bonds currently

Drongo Corporation's 4-year bonds currently yield 8.6 percent and have an inflation premium of 3.9%. The real risk-free rate of interest, r*, is 2.9 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1% (t-1), where t is equal to the time to maturity. The default risk and liquidity premiums for this company's bonds total 1.5 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 1.1 percent for years 5, 6, and 7, what is the yield on a 7-year bond for Drongo Corporation? O 7.70% 8.10% O 7.50% O 7.30% O 7.90%

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!