Difference in interest rates in corporate and treasury bonds

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Reference no: EM13803328

Assume that r* = 1.0%; the maturity risk premium is found as MRP = 0.1%(t - 1) where t = years to maturity; the default risk premium for Corporate bonds is found as DRP = 0.06% (t - 1); the liquidity premium is 0.80% for corporate bonds; and inflation is expected to be 4%, 5%, and 6% during the next three years and then 3% thereafter. What is the difference in interest rates between 10-year corporate bonds and 10-year Treasury bonds?

Reference no: EM13803328

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