Finance Questions....?

Answers:

1. 8.5% - 6% = 2.5%

2. 6.2% - (3% + 3%) = 0.2% (rouhly or you could use 6.2% - (1.03 x 1.03) = 0.11%

3. 0.0005(7-1) + 3% + 3.5% = 6.503%

I am about 80% sure about the second and third answers...

Assume the risk free rate ,r’is 3 percent and that inflation is expected to be 8percent in year 1,5 precent in year 2 and 4 precent thereafter assume also that all treasury securities are hightly liguid and free default risk,if 2 years and 5 years treasury notes both yield 10 percent ,what is the different in maturity risk premium on the two on th two notes that is,what is MRP 5 mimus MRP2

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RE :Finance Questions....?

1)A treasury bond that matures in 10 years has a yield of 6 percent. A 10 year corporate bond has a yield of 8 percent. Assume that the liquidity premium on the corporate bond is .5 percent. What is the default risk premium on the corporate bond?

2)The real risk free rate is 3 percent, and inflation is expected to be 3 percent for the next 2 years. A 2 year treasury security yilds 6.2 percent. What is the maturity risk premium for the 2 year security?

3)The real risk free rate is 3 percent. Inflation is expected to be 3 percent this year, 4 percent next year, and then 3.5 percent therafter. The maturity risk premium is estimated to be .0005 X (t-1), where t=number of years to maturity. What is the nominal interest rate on a 7 year treasury security?

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