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Calculate the interest rate on an eight-year bond

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Reference no: EM132692850

Use the following information to calculate the interest rate on an eight-year bond just issued by Becher Inc.

Inflation: next two years   = 2%

year 3 and beyond = 4%

Pure/Real Risk Free Rate = 2%

Maturity Risk Premium = zero for a 1-year maturity, increasing by .1% each year thereafter

Default Risk Premium = 1.5%

Liquidity Risk Premium = 0.0% for treasuries; 0.5% for Corporate bonds

Part 2: What is the interest rate that would be applied to the Becher Inc Bond?

Reference no: EM132692850

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