An analyst evaluating securities has obtained the following informat

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School
Western Governors University **We aren't endorsed by this school
Course
FINANCE MISC
Subject
Finance
Date
Nov 4, 2023
Pages
1
Uploaded by CorporalIbis3702 on coursehero.com
An analyst evaluating securities has obtained the following information. The real rate of interest is 2.9% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.5% next year, 3.5% the following year, 4.5% the third year, and 5.5% every year thereafter. The maturity risk premium is estimated to be 0.1 (t 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Do not round intermediate calculations. Round your answer to one decimal place. b. What is the yield on a 5-year T-bond? Do not round intermediate calculations. Round your answer to one decimal place. c. What is the yield on a 5-year corporate bond? Do not round intermediate calculations. Round your answer to one decimal place.
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