What is the yield on a five-year a-rated corporate bond


Suppose the real risk-free rate is 3.50%, inflation next year is expected to be 1.5%, 2.5% two years from now and 3% thereafter. There is a maturity premium of 0.02% per year to maturity i.e., MRP = 0.20%(t), where t is the years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 1.35% exist. What is the yield on a 5-year A-rated corporate bond and on a 10-year Treasury bond?

Request for Solution File

Ask an Expert for Answer!!
Finance Basics: What is the yield on a five-year a-rated corporate bond
Reference No:- TGS0728072

Expected delivery within 24 Hours