A particular security's equilibrium rate of return is 8 percent. For all securities, the inflation risk...

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A particular securitys equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 2.45 perce

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Answer 1

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Rate of Return = 8.00%
Inflation Risk Premium = 2.45%
Real Risk-free Rate = 2.00%
Liquidity Risk Premium = 0.75%
Maturity Risk Premium = 0.95%

Rate of Return = Real Risk-free Rate + Inflation Risk Premium + Liquidity Risk Premium + Maturity Risk Premium + Default Risk Premium
8.00% = 2.00% + 2.45% + 0.75% + 0.95% + Default Risk Premium
8.00% = 6.15% + Default Risk Premium
Default Risk Premium = 1.85%

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Answer 2

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