Homework Answers
Security's equilibrium rate of return = Real risk free rate + inflation risk premium + default risk premium + liquidity risk premium + maturity risk premium
=2.90 + 3.85 + 4 + 0.15 + 0.75
= 11.65%
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1 Problem 6-1 Determinants of Interest Rates for Individual Securities (LG6-6) eBook A particular security's default...
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Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 4.90 percent....
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ut of A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 2.25 percent. The security's liquidity risk premium is 0.75 percent and maturity risk premium is 0.90 percent. The security has no special covenants. What is the security's equilibrium rate of return? O Select one: A. 1.78 percent B . 17.8 percent C. 8.90 percent D. 3.95 percent The Wall Street Journal reports that...
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