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?