Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.50%, a maturity premium of 0.20% per year to maturity applies, i.e., MRP = 0.20%(t), where t is the number of years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 2.70% applies to A-rated corporate bonds. What is the difference in the yields on a 5-year A-rated corporate bond and on a 10-year Treasury bond? Here we assume that the pure expectations theory is NOT valid, and disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average.
A. ?1.91
B. 2.20?
C. 2.27?
D. 2.13?
E. 1.78?
Answer: B
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TMAP is a tool to achieve aggregate opinions concerning real-world knowledge solicited from experts within certain topic areas
Indicate whether the statement is true or false
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