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1. The real risk-free rate is 3.25%. Inflation is expected to be 2.5% this year and 4.75% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. 5.38 % What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.

2. A Treasury bond that matures in 10 years has a yield of 4%. A 10-year corporate bond has a yield of 7%. Assume that the liquidity premium on the corporate bond is 0.6%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.

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Financial Management, Finance

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