Treasury bonds – Cheap Research Essays

Economists expect that the nominal risk-free rate of return, rRF, on one-year Treasury bonds will be 2.4 percent long into the future. General Machinery’s (GM) one-year bond has a yield equal to 4.8 percent. The yield on the GM bond includes a liquidity premium equal to 0.3 percent. Suppose the maturity risk premium (MRP) for all bonds with maturities greater than one year is 0.15 percent per year. Based on this information, what should be the yield on GM’s fiveyear bonds?

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