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Running into a wall with this question. I think I'm missing a step. Assume that real risk-free rate (r*) = 1.00%; the maturity risk premium is found...
Running into a wall with this question. I think I'm missing a step. Any help is greatly appreciated. Thx!
Assume that real risk-free rate (r*) = 1.00%; the maturity risk premium is found as MRP = 0.20%×(t - 1), where t = years to maturity; the default risk premium for AT&T bonds is found as DRP = 0.07%×(t - 1); the liquidity premium (LP) is 0.50 percent for AT&T bonds but zero for Treasury bonds; and inflation is expected to be 7 percent, 6 percent, and 5 percent during the next three years and then 4 percent thereafter. What is the difference in interest rates between 10-year AT&T bonds and 10-year Treasury bonds? (Round answer to two decimal places.)
0.25%
