What rate of interest should the u.s corporate bond pay

Reference no: EM13261943

You are considering an investment in a AAA-rated U.S corporate bond but you are not sure what rate of interest it should pay. Assume that the real risk-rate of interest is 1%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; and, the default risk premium for AAA rated corporate bonds is 3.5%. What rate of interest should the U.S corporate bond pay?

Reference no: EM13261943

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