You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: • Inflation premium = 3.50% Liquidity premium = 0.3% . Maturity risk premium = 2.30% Default risk premium 2.00% On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places. %

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Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.