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

### Resolved Question:

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: 7 years ago.
Category: Homework
Expert:  Manal Elkhoshkhany replied 7 years ago.

Hello and welcome to Just Answer

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: 9735
Experience: More than 5000 online tutoring sessions.
Customer: replied 7 years ago.
Hi there- Can you tell me what does the market expect that inflation will average over the next five years?
Customer: replied 7 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 7 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 7 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 7 years ago.

Hello

Thanks for understanding

Regards,

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

Expert:  Manal Elkhoshkhany replied 7 years ago.
P.S. Please do not click Accept again so that you are not double charged
Customer: replied 7 years ago.
Thank you, XXXXX XXXXX stand by
Customer: replied 7 years ago.
any luck?
Expert:  Manal Elkhoshkhany replied 7 years ago.

Pulling my hair :)

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

Customer: replied 7 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 7 years ago.

You need to spend \$3 to view this post. Add Funds to your account and buy credits.
Customer: replied 7 years ago.
PERFECT--- THANKS SO MUCH!!
Expert:  Manal Elkhoshkhany replied 7 years ago.

You are most welcome :)

Take care

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