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October 31, 2014

October 31, 2014

Posted by **Mel** on Saturday, September 15, 2007 at 9:14pm.

Assume that there is no maturity risk premium (MRP _ 0), and that the annual real riskfree rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP _ LP _ 0.)

A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described above. What is the yield on this 5-year corporate bond?

- Finance -
**Mel**, Saturday, September 15, 2007 at 9:47pmDoes this sound right to my question?

10 year at 8.4% with an inflation of 2.5 over that same time period.

risk free stays the same LP is zero so those are really irrelavant.

so we need to figure out a five year equation of the above but with five years

8.4% shouldn't change due to its pretty much locked in

now the 2.5% predicted inflation is over ten years.

So that 2.5 needs to be broke down over a ten year span which is a quart of percent per year for ten years..and that quarter of percent needs to be broken down to a monthly percent

So a year is .25/12=0.020834of a percent per month.

So for five years would it be 0.020834 permonth for five years.

12 months is a year for five years is sixty months.

So maybe 0.020834*60=1.25% for the inflation for that five year period.

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