[Solved] You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.7%. Your brother-in-law, a broker at Safe and Sound Securities
Real Risk-Free Rate
You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.7%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:
- Inflation premium = 2.5%
- Liquidity premium = 0.8%
- Maturity risk premium = 2.15%
- Default risk premium = 2%
On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.
Default Risk-Premium
A Treasury bond that matures in 10 years has a yield of 5.25%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.65%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
Maturity Risk Premium
The real risk-free rate is 3%, and instillation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 9%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.
Expectations Theory
One-year Treasury securities yield 4.55%. The market anticipates that 1 year from now. 1-year Treasury securities will yield 6.9%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Round your answer to two decimal places.
Expert Answer
Answer to You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.7%. Your brother-in-law, a broker at Safe and Sound Securities….
OR
