What is drp associated with corporate bonds

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Suppose economists have determined that the real risk-free rate of return is 3 percent and that inflation is expected to average 2.5 percent per year long into the future. A one-year treasury note offers a rate of return equal to 5.6 percent. You are evaluating two corporate bonds: (1) Bond A has a rate of return, rA, equal to 8 percent; and (2) Bond B has a rate of return, rB, equal to 7.5 percent. except for their maturities, these bonds are identical - Bond A matures in 10 years, whereas Bond B matures in five years. You have determined that both bonds are very liquid, thus neither bond has a liquidity premium. Assuming that there is an MPR for bonds with maturities equal to one year or greater, compute the annual MRP. What is DRP associated with corporate bonds?

Reference no: EM131049873

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