An analyst evaluating securities has obtained the following information. The real rate of interest is 3% and is expected to remain constant for the next 5 years. Inflation is expected to be 2% next year, 3% the following year, 4% the third year, and 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 two decimal places.
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b. What is the yield on a 5-year T-bond? Do not round intermediate calculations. Round your answer to two decimal places.
%_____
c. What is the yield on a 5-year corporate bond? Do not round intermediate calculations. Round your answer to two decimal places.
%____