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Manal Elkhoshkhany
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a 5-year treasury bond has a 5% yield. a 10-year treasury bond

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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 is the yield on this 5-year corporate bond?
Submitted: 5 years ago.
Category: Homework
Expert:  Manal Elkhoshkhany replied 5 years ago.

Hello and welcome to Just Answer

 

Please click here for the solution

 

Regards,

 

 

P.S. If you like my work, please feel free to direct your future posts to me specifically by typing "For BusinessTutor" at the beginning of your post.

Manal Elkhoshkhany, Tutor
Category: Homework
Satisfied Customers: 9476
Experience: More than 5000 online tutoring sessions.
Manal Elkhoshkhany and 12 other Homework Specialists are ready to help you
Customer: replied 5 years ago.
Hi there- Can you tell me what does the market expect that inflation will average over the next five years?
Customer: replied 5 years ago.
I JUST PAID FOR THIS AND REALIZED--- YOU DIDN'T ANSWER THE PROBLEM CORRECTLY. IF YOU NOTE, I AM LOOKING FOR A 5% YIELD. YOU ANSWERED THE PROBLEM WITH A 5.2% YIELD. PLEASE ADVISE AS TO THE CORRECT ANSWER--- THANK YOU VERY MUCH!
Expert:  Manal Elkhoshkhany replied 5 years ago.

I cannot believe it I made this mistake!! It is because I have your book and had answered the same problem before, but the interest was 5.2% instead of 5%. I truely apologize for this mistake, just allow me a couple of minutes and I will post the correct solution, in the meantime, since you have the steps, try working out the problem at the same time so that you can compare it to my answer and see if you get the steps. Again, sorry about that (and thank you for the accept)

 

Customer: replied 5 years ago.
GREAT, THANK YOU for your prompt reply--- In understand these things can happen. I will start on this from my end--- if you could also figure in the inflation average over next five yeard (what does market expect that inflation will average over the next five years) that would be terrif!
Expert:  Manal Elkhoshkhany replied 5 years ago.

Hello

 

Thanks for understanding

 

Please click here for the correct solution

 

Regards,

 

P.S. I will ned to review something for your second question, I will be in touch :)

Expert:  Manal Elkhoshkhany replied 5 years ago.
P.S. Please do not click Accept again so that you are not double charged
Customer: replied 5 years ago.
Thank you, XXXXX XXXXX stand by
Customer: replied 5 years ago.
any luck?
Expert:  Manal Elkhoshkhany replied 5 years ago.

Pulling my hair :)

 

The question is for the same problem gven above, right?

Customer: replied 5 years ago.
yes--- it was question #1 in regard to the above, and the yield question was question #2. I understand how to get expected inflation using TIP and IP, etc., but this question is complex and I cannot quite get it right--- would sincerely XXXXX XXXXX you could answer the first part to this--- I know it's a challenge! thanks so much! Will check back later--- thank you again.
Expert:  Manal Elkhoshkhany replied 5 years ago.
THIS ANSWER IS LOCKED!
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Customer: replied 5 years ago.
PERFECT--- THANKS SO MUCH!!
Expert:  Manal Elkhoshkhany replied 5 years ago.

You are most welcome :)

 

I also answered your other post

 

Take care

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