Assume that 4-year treasury bonds currently have a nominal, Ask an Expert

Economics

Assume that 4-year Treasury Bonds currently have a nominal yield of 6.2%, and 4-year Corporate Bonds have a nominal yield of 8.5%. Further assume that Maturity Risk Premium (MRP) on all 4-year contracts currently is 1.3%, and Corporate Bonds currently have additional 0.4% Liquidity Risk Premium (LRP) (whereas Treasury Bonds do not have Liquidity Risk Premium).

A. Write down an equation for the nominal interest rate

B. Now calculate the current Default Risk Premium (DRP) on the Corporate Bonds

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91406404

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