What will be the yield on the bond

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Question - An analyst made the following assessments:

Inflation is expected to be 1% this year, 2% next year, 3%, 4%, 5% on the next succeeding years, and then for the next succeeding years it will be constant throughout at a rate of 7%.

The real risk-free rate is expected to remain at 4% for the next 15 years.

The maturity risk premium is 0.1%(t), where t = the maturity of the bond in years.

A 10-year corporate bond currently yields 15%. Assume that the above assessments are true, what will be the yield on the bond, one year from now assuming that the bond's default and liquidity premium is the same?

Reference no: EM133059294

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