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Determining the yield on an 8-year corporate bond

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Reference no: EM131879911

The real risk-free rate of interest is 2 percent. The market expects that inflation will be 3 percent each year for the next five years, and then will average 5 percent a year thereafter. The maturity risk premium is estimated to be MRPt= 0.1(t - 1) %.

A 10-year corporate bond yields 8.6 percent. What is the yield on an 8-year corporate bond that has the same default risk and liquidity as the 10-year bond?

Reference no: EM131879911

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