Interest rates between at and t bonds and treasury bonds

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Reference no: EM131314356

Assume that r* = 2.0%; the maturity risk premium is found as MRP = 0.2%(t − 1) where t = years to maturity; the default risk premium for AT&T bonds is found as DRP = 0.05%(t − 1); the liquidity premium is 0.75% for AT&T bonds but zero for Treasury bonds; and inflation is expected to be 7%, 6%, and 6% during the next three years and then 4% thereafter. What is the difference in interest rates between 20-year AT&T bonds and 20-year Treasury bonds?

Reference no: EM131314356

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