Assignment:
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Suppose the following data on yields from holds:
3-month T-Bill 5.0%
30-year T-Bond 7.2%
30-year AAA Corporate 8.6%
30-year Municipal 6.02%
Question 1. Assume the same risk for 30-year AAA Corporate bonds and 30-year Municipal Bonds. If you are indifferent between the two bonds what is your implied marginal tax rate?
Question 2. What is the real risk free rate for 3-month if the inflation for 3 months is estimated as 3.0%?
Question 3. What is the default risk premium on 30-year AAA corporate bonds? Assume there exists liquid markets for AAA corporate bonds.
Question 4. What is the maturity risk premium on 30-year Treasury bonds? Assume the expected inflation for 3-month T-Bills and 30-year T-Bonds are the same.