An analyst evaluating securities has obtained

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An analyst evaluating securities has obtained the following information. The real rate of interest is 2.6% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.1% next year, 3.1% the following year, 4.1% the third year, and 5.1% 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? Round your intermediate calculations and final answer to two decimal places.

b. What is the yield on a 5-year T-bond? Round your intermediate calculations and final answer to two decimal places.

c. What is the yield on a 5-year corporate bond? Round your intermediate calculations and final answer to two decimal places.

Reference no: EM131016193

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