Explore BrainMass

Explore BrainMass

    Long term T-bonds and risk free rate for T-bills

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    If given the following data:

    r* = real risk-free rate = 4%
    Constant inflation premium = 7%
    Maturity risk premium = 1%
    Default risk premium for AAA bonds = 3%
    Liquidity premium for long-term T-bonds = 2%

    Assume that a highly liquid market does not exist for long-term T-bonds, and the expected rate of inflation is a constant. Given these conditions, the nominal risk-free rate for T-bills is _____, and the rate on long-term Treasury bonds is _____.

    © BrainMass Inc. brainmass.com June 3, 2020, 6:27 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/long-term-t-bonds-and-risk-free-rate-for-t-bills-61121

    Solution Summary

    The solution discusses long term t-bonds and risk free rate for t-bills.

    $2.19

    ADVERTISEMENT