What is the yield on three-year corporate bond

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Reference no: EM131323192

The 60-day T-bills are currently yielding 7%. A broker has given you the following estimates of current interest rate premiums:

Inflation premium= 4.25%

Liquidity premium= 0.6%

Maturity risk premium= 1.8%

Default risk premium= 2.15%

On the basis of these data, what is the real risk-free rate of return?

Financial analyst has gathered market information, and suggests that the real rate of interest is 3 % and is expected to remain constant for the next 3 years. Inflation is expected to be 3% next year, and 5% thereafter. The maturity risk premium is estimated to be 0.2 × (t – 1)%, where t = number of years to maturity. The liquidity premium on relevant 3-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%.

1) What is the yield on a 1-year T-bill?

2) What is the yield on a 2-year T-bill?

3) What is the yield on a 3-year T-bill?

4) What is the yield on a 3-year corporate bond?

Reference no: EM131323192

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