Question: Quantitative Problem: An analyst evaluating securities has obtained the following information. The real rate of interest is 2.6% and is expected to remain constant for
Quantitative Problem: An analyst evaluating securities has obtained the following information. The real rate of interest is 2.6% and is expected to remain constant for the next 5 years. Inflation is expected to be 2% next year, 3% the following year, 4% the third year, and 5% every year thereafter. The maturity risk premium is estimated to be 0.1 * (t-1)%, wheret - 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 96 c. What is the yield on a 5-year corporate bond? Round your answer to one decimal place. 9
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