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Question
Assume that r* = 2.0%; the maturity risk premium is found as MRP = 0.1%(t u2212 1) where t = years to maturity; the default risk premium for corporate bonds is found as DRP = 0.05%(t u2212 1); the liquidity premium is 1.0% for corporate bonds only; and inflation is expected to be 3%, 4%, and 5% during the next three years and then 6% thereafter. What is the difference in interest rates between 10-year corporate and Treasury bonds?
a. 0.45%
b. 1.45%
c. 2.20%
d. 2.75%
e. 3.25%
Answer
This answer is hidden. It contains 235 characters.
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