Quantitative Problem:

An analyst evaluating securities has obtained the following information. The real rate of interest is 2.7% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.4% next year, 3.4% the following year, 4.4% the third year, and 5.4% every year thereafter. The maturity risk premium is estimated to be 0.1 × (t – 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%.

a. What is the yield on a 1-year T-bill? Round your intermediate calculations and final answer to two decimal places. %

b. What is the yield on a 5-year T-bond? Round your intermediate calculations and final answer to two decimal places  %

c. What is the yield on a 5-year corporate bond? Round your intermediate calculations and final answer to two decimal places. %