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Assume that k* = 2.0%; the maturity risk premium is found as MRP = 0.1% (t-1), where t= years to maturity; the default risk premium for corporate...
Assume that k* = 2.0%; the maturity risk premium is found as MRP = 0.1% (t-1), where t= years to maturity; the default risk premium for corporate bonds is found as DRP = 0.05% (t-1); the liquidity premium is 1% for corporate bonds only; and inflation is expected to be 3%, 4%, and 5% during the next 3 years and then 6% thereafter.What is the difference in the interest rates between 10-year corporate and Treasury bonds??