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Estimate the market interest rate

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A 30-year corporate bond has a market interest rate of 15.25%. This bond is not very liquid and consequently requires a 2.75% liquidity premium. The bond is of low quality and thus has a default risk premium of 3.43%. The bond has a remaining life of 25 years, resulting in a maturity risk premium of 2.83%.

a. Estimate the market interest rate on a 30-year Treasury bond.

b. What would be the inflation premium on the Treasury bond if investors required a real rate of interest of 4.07%?

Reference no: EM133072744

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