I am looking at corporate bonds issued by Acme corp. Trying to determine what th

Question

I am looking at corporate bonds issued by Acme corp. Trying to determine what the nominal interest rate should be on them. Real risk- free interest rate is 3.1%, and is expected to continue on in the future without change. Inflation is expected to remain constant in the future at 3.3%. Default-risk premium is expected to remain constant at the rate of 1.8% . The liquidity risk is only 0.03% on the bonds. The maturity risk premium is dependent upon how many years the bond has to maturity. The maturity risk is as follows

Bonds Mature In                                      Maturity Risk Premium

0-1 years........................................................0.06%

1-2 years                                                       0.25%

2-3 years                                                       0.70%

3-4 years                                                       0.90%

Given this info.......whatwould the nominal rate of interest on Acme bonds maturing in 0-1 year ?, 1-2 years ?, 2-3 years, and 3-4 years?.....Please round these 4 answers to 2 decimal places.

Explanation / Answer

nominal rate of interest

0-1 years8.29%

1-2 years 8.48%

2-3 years 8.93%

3-4 years 9.13%

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