Purchase Solution

Average Inflation of a 5-year treasury bond

Not what you're looking for?

Ask Custom Question

A 5-year treasury bond has a 5% yield. a 10-year treasury bond has a 6% yield. a 10-year corporate bond has an 8% yield. the market expects that inflation will average 2.5% over the next 10 years (IP10=2.5%). Assume that there is no maturity risk premium (MRP=0), and that the annual real risk-free rate of interest, r*, will remain constant over the next 10 years. What does the market expect that inflation will average over the next five years? A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described above. what does market expect that inflation will average over the next five years

Purchase this Solution
Solution Summary

The solution explains how to calculate the average inflation value.

Solution Preview

Problem: A 5-year treasury bond has a 5% yield. a 10-year treasury bond has a 6% yield. a 10-year corporate bond has an 8% yield. the market expects that inflation will average 2.5% over the next 10 years (IP10=2.5%). Assume that there is no maturity risk premium (MRP=0), and that the annual real risk-free rate of ...

Purchase this Solution
Free BrainMass Quizzes
Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Motivation

This tests some key elements of major motivation theories.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

View More Free Quizzes
Related BrainMass Solutions

  • Real Rate of Return, Expected Nominal Interest Rate

    In contrast, a ten-year Treasury bond has an interest rate of 3.7 percent.

  • Expected Rate of Interest: expectations theory

    Suppose the annual yield on a 2-year Treasury bond is 7.5 percent, the yield on a 1-year bond is 5 percent, k* is 3 percent, and the maturity risk premium is zero.

  • Nominal rate of interest on a 25 year BBB bond in several se

    202253 Nominal rate of interest on a 25 year BBB bond in several sets of circumstances Compute the nominal rate of interest on a 25 year BBB bond issue for a company given the following sets of circumstances: 1.

  • Yield on a Treasury Bond

    53684 Yield on a Treasury Bond The market expects that inflation will be 3% percent each year for the next 5 years and then the following years will average 5% percent a year.

  • Yield on 5-year corporate bond

    140496 What is the yield on this 5-year corporate bond? Interest rate premiums A 5-year Treasury bond has a 5.2 percent yield. A 10-year Treasury bond yields 6.4 percent, and a 10-year corporate bond yields 8.4 percent.

  • Multiple choice questions on bonds, yields

    The 10-year corporate bond must have a higher yield than the 5-year corporate bond. 19. Which of the following statements is most correct? a. The yield on a 2-year corporate bond will always exceed the yield on a 2-year Treasury bond. b.

  • Yield on T-Bond

    53707 Yield on a Treasury bond The market expects that inflation will be 3% percent each year for the next 5 years and then the following years will average 5% percent a year. The maturity risk premium is estimated to be MRPt = 0.1(t - 1)%.

  • Return on tresury Bills, Bond Valuation

    212636 Average Return, Standard Deviation of Return, Average Real Return for Treasury bills; Bond Valuation Calculating Returns Refer to the following table: Year T-bills Inflation 1973

  • Determination of Interest Rates

    IP= 4.43% =(3*5%+4*4%)/7 {We take average inflation.

View More Related Solutions