Default risk premium for corporate bonds is found

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Assume that r*=2%; the maturity risk premium is found as MRP=0.1% times (tminus1), where t=years to maturity; default risk premium for corporate bonds is found as DRP= 0.05% times (t minus 1); the liquidity premium is 1% for corporate bonds only; and inflation is expected to be 3%, 4%, and 5% during the next three years and then 6% thereafter. What is the difference in interest rates between 10- year Treasury bonds? Please show all work so I understand it.

Reference no: EM131052232

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