1.A particular security’s default risk premium is 3 percent. For all securities, the inflation risk premium is 2.65 percent and the real risk-free rate is 1.50 percent. The security’s liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return. (Round your answer to 2 decimal places.) 2. A particular security’s default risk premium is 2 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 1.50 percent. The security’s liquidity risk premium is 0.25 percent and maturity risk premium is 0.85 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return. (Round your answer to 2 decimal places.)
1.A particular security’s default risk premium is 3 percent. For all securities, the inflation risk premium is 2.65 percent and the real risk-free rate is 1.50 percent. The security’s liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security’s equilibrium
2. A particular security’s default risk premium is 2 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 1.50 percent. The security’s liquidity risk premium is 0.25 percent and maturity risk premium is 0.85 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return. (Round your answer to 2 decimal places.)
The equilibrium rate of return of security refers to the average return that it provides after all the factors have been considered. It is the sum of the risk-free rate and the various risk premia associated with the security.
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