What is the maturity risk premium for the two-year security

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Reference no: EM131579888

Real Risk-Free Rate

You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:

Inflation premium = 3%

Liquidity premium = 0.5%

Maturity risk premium = 1.7%

Default risk premium = 2.75%

On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.

Default Risk Premium

A Treasury bond that matures in 10 years has a yield of 5.5%. A 10-year corporate bond has a yield of 10%. Assume that the liquidity premium on the corporate bond is 0.55%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.

Maturity Risk Premium

The real risk-free rate is 2.75%, and inflation is expected to be 2.25% for the next 2 years. A 2-year Treasury security yields 7.75%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.

Reference no: EM131579888

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