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How do calculate the rate of return on the bonds

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Reference no: EM133011270

Problem 1: Calculate the rate of return on the following bonds using the information provided. The real risk-free rate is currently 3.5%. The default risk premium on corporate bonds is 1.7%. Inflation is projected to be 2% this year, 1.5% next year, and 3% for the next 8 years. A maturity premium of 0.25% per year applies.

a. 1-year treasury bond
b. 5-year treasury bond
c. 5-year corporate bond
d. difference in rate on 5 year corporate and 10 year treasury bonds

Reference no: EM133011270

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