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Problem:

Current yield on 10 year and 30 year U.S. treasury securities are 2.57% and 3.28% respectively. Assume the default risk premium (DRP) and liquidity premium (LP) are zero.

Answer the given questions:

Question 1: What is the bond market predicting about the rate of inflation in the next 10 to 30 years?

Question 2: What is the bond market predicting about the real-risk free rate of inflation in the next 10 to 30 years?

Question 3: Would you invest $1000 today in a 30 year treasury security at current rates? Explain you answer.

Question 4: Do you think the assumption of the default risk premium being zero is a good assumption? Explain your answer. Please describe in detail and provide step by step solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91146064

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