Yield on a Corporate Bond Assignment | Homework For You

6. (15 points) An analyst evaluating securities has obtained the following information. The real rate of interest is 2%. The rate is expected to remain constant for the next 3 years. Inflation is expected to be 3% next year, 3.5% the following year, and 4% the third year. The maturity risk premium is estimated to be 0.1 x (t-1)%, where t = number of years to maturity. The liquidity premium on relevant 3-year securities is 0.55% and the default risk premium on relevant 3-year securities is 0.8%. Compute the yield on a 3-year corporate bond. (Note that Use formula for the full credit. Copying an answer obtained from a financial calculator only guarantees a maximum of 10 points).Get Finance homework help today