The following data about the real risk free rate and other risk premiums are gathered: · The real risk free rate is 4%. · Inflation premium is constant at 3.5% in the foreseeable years · Maturity premium is determined using the equation of 0.5%(number of year of maturity). · Liquidity premium is
The following data about the real risk free rate and other risk premiums are gathered: · The real risk free rate is 4%. · Inflation premium is constant at 3.5% in the foreseeable years · Maturity premium is determined using the equation of 0.5%(number of year of maturity). · Liquidity premium is
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The following data about the real risk free rate and other risk premiums are gathered:
· The real risk free rate is 4%.
· Inflation premium is constant at 3.5% in the foreseeable years
· Maturity premium is determined using the equation of 0.5%(number of year of maturity).
· Liquidity premium is available for all corporate securities at 1.5%.
· Default risk is set at 3%.
What is the quoted rate on a security issued by the corporations that will mature after 8 years? (In percentage)
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