Difference in the yields on a 5 year a rated corporate bond

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Reference no: EM131223547

Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.50%, a maturity premium of 0.20% per year to maturity applies, i.e., MRP = 0.20%(t), where t is the number of years to maturity.

Suppose also that a liquidity premium of 0.50% and a default risk premium of 1.35% applies to A-rated corporate bonds.

What is the difference in the yields on a 5-year A-rated corporate bond and on a 10-year Treasury bond?

Reference no: EM131223547

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