A fixed income analyst has made the following assessments: The risk-free rate is expected to remain at 2.5% for the next 10 year. Inflation is expected to be 3% this year, 4% next year and 5% a year thereafter. The maturity risk-premium is 0.1% (t-1), where t= maturity of the bond. A 5-year corporate bond currently yield 8.5 percent. What will be the yield on the bond one year from now, if the above assessments are correct, and the bond's default premium and liquidity premium remain unchanged?
A fixed income analyst has made the following assessments: The risk-free rate is expected to remain at 2.5% for the next 10 year. Inflation is expected to be 3% this year, 4% next year and 5% a year thereafter. The maturity risk-premium is 0.1% (t-1), where t= maturity of the bond. A 5-year corporate bond currently yield 8.5 percent. What will be the yield on the bond one year from now, if the above assessments are correct, and the bond's default premium and liquidity premium remain unchanged?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 10P
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A fixed income analyst has made the following assessments:
- The risk-free rate is expected to remain at 2.5% for the next 10 year.
- Inflation is expected to be 3% this year, 4% next year and 5% a year thereafter.
- The maturity risk-premium is 0.1% (t-1), where t= maturity of the bond.
A 5-year corporate bond currently yield 8.5 percent. What will be the yield on the bond one year from now, if the above assessments are correct, and the bond's default premium and liquidity premium remain unchanged?
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