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D Question 1 1 pts You are estimating the correct rate for a small companys bond with a maturity of 20 years. You estimate the real risk-free rate is 0.4%, the maturity risk premium on a 20 year bond is 1.9%, and the expected average inflation over the 20 years is 2.5%. You estimate the companys default risk premium is 2.9% and due to the expected infrequent trading the liquidity risk premium for the bond is 0.3%. What is the expected rate on the bond? Express in DECIMALS, not %, so 5.22% should be .0522.

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Answer #1

Expected rate of bond = Real risk free rate+ Inflation premium + Maturity risk premium + Default risk premium + Liquidity risk premium

= 0.4%+2.5%+ 1.9%+ 2.9%+ 0.3%

=0.08

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