Question

4. Suppose that for all securities, the inflation risk premium is 2.15 percent and the real interest rate is 3.80 percent. A particular security's default risk premium is 1.54 percent and its liquidity risk premium is 0.78 percent. If the security has no special covenants and its maturity risk premium is 1.35 percent, what is the security's equilibrium rate of return? A. more than 10.50 percent B. more than 10.15 percent but less than 10.50 percent C. more than 9.80 percent but less than 10.15 percent D. more than 9.45 percent but less than 9.80 percent E. less than 9.45 percent Which of the following statements is (are) correct? (x) Su 5. ppose Sara deposits money in a bank account that pays an annual nominal interest rate of 2.75 power of percent. If the real rate of interest is 1.5 percent, then, at the end of one year the purchasing Sara's account has increased less than the number of dollars in the account f the nominal rate of interest is 4.25 percent and the expected inflation rate is 1.50 percent, then the real rate of interest is 2.75 percent. (z) if a particular bond does not have liquidity risk, maturity risk, or default risk then the nominal rate would A. B. C. D. E. equal the real rate in the scenario where deflation exists. (x), (y) and (z) (x) and (y) only (x) and (z) only (y) and (z) only (z) only m is Suppose a 2-year Treasury security currently earns 3.18%. Over the next 2 years, the inflation premi expected to be 1.85% per year. You make the usual assumption that there is no liquidity risk on a Treasury security if the maturity risk premium on the 2-year Treasury security is 0.45%, then what is the real interest rate on this security? A. more than 1.70 percent B. more than 1.45 percent but less than 1.70 percent C. more than 1.20 percent but less than 1.45 percent n more than 0.95 percent but less than 1.20 percent 6