A fixed-income analyst has made the following assessments:
(1) The real risk-free rate is expected to remain at 2.5 percent for the next ten years.
(2) Inflation is expected to be 3 percent this year, 4 percent next year, and 5 percent a year thereafter.
(3) The maturity risk premium is 0.1%(t - 1), where t = the maturity of the bond (in years).
A five-year corporate bond currently yields 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?© BrainMass Inc. brainmass.com June 3, 2020, 6:27 pm ad1c9bdddf
Yield on bond = Real risk free rate + inflation premium + maturity risk premium + default risk premium + liquidity ...
The expert examines the real risk-free rate for the expected remains.