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Suppose the real risk-free rate is 350 inflation is

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Suppose the real risk-free rate is 3.50%. Inflation is expected to be 2% next year, 3% the following year and then 3.5% thereafter. There is a maturity premium of 0.08% per year to maturity i.e., MRP = 0.08%(t), where t is the years to maturity. Liquidity premiums of 0.5% and default risk premiums of 0.85% are standard. What would be the nominal return on a 10 year Treasury bond and a corporate bond with the same maturity?

Reference no: EM13621075

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