The real risk rate of interest,r* is 3%,and it is expected to remain constant over time. Inflaction is expected to be 2% per yar for the next 3 years and 4% per year for the next 5 years. The maturity risk premum for a BBB-rated bond is 1.3%.
a. What is the average expected inflaction rate over the next 4 years?
b. What is the yield on a 4-year Treasury bond?
c. What is the yeild on a 4-year BBB-rated corporate bond with a liquidity premium of 0.5%
d. What is the yield on an 8-year Treasury bond?
e. What is the yield on an 8-year BBB-rated corporate bond woth liquidity premium of 0.5%
f. If the yield on a 9-year Treasury bond is 7.3%, what does that imply about expected inflation in 9 years?