# PLEASE Show Work: I’ve made a calculation error in Excel 1.

1.      If a 10-year Treasury bond has a yield of 8%, and a 10-year corporate bond that is rated AA has a yield of 10%, and the liquidity premium on the corporate bond is 1%, what is the default risk premium on the AA rated, 10-year corporate bond?

2.       Interest rates on 4-year Treasury securities are currently 8%, while 6-year Treasury securities are 8.5%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from today?

3. If r* is 2%, inflation is expected to be 3% the first year, 4% the second year, 5% the third year, and 4% in the fourth and fifth years. Assume there is no liquidity premium, no default risk, but there is maturity risk of .4% the second year, and .6% the third year, and .8% the fourth year, and 1% the fifth year. Calculate the interest rate “r” for

year 2______%

year 3_______%

year 4______%

year 5______%

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