Assume there is no liquidity premium on vondrell bonds

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Reference no: EM132009560

The real risk-free rate, r*, is 2.6%. Inflation is expected to average 2.25% per year for the next 4 years, after which time it is expected to average 3.75%, forever. An 8-year corporate bond Issued by the Vondrell Corporation will yield 9.5%, which includes a maturity risk premium of 0.20 x (t – 1)%, where t is the bond maturity in years. Assume there is no liquidity premium on Vondrell bonds. What is the yield spread between Vondrell and an 8-year Treasury Security?

Reference no: EM132009560

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