(Interest rate determination) If the 10-year Treasury bond rate is 6.4%, the inflation premium is 1.9%,...
(Interest rate determination)
If the 10-year Treasury bond rate is 6.4%, the inflation premium is 1.9%, and the maturity-risk premium on 10-year Treasury bonds is 0.2%, assuming that there is no liquidity-risk premium on these bonds, what is the real risk-free interest rate? The real risk-free interest rate is _____%. (Round to one decimal place.)
Homework Answers
RATE FOR 10 YEAR TREASURY BOND = r* + IP + MRP
6.4% = r* + 1.9% + 0.2%
r* = 6.4% - 1.9% - 0.2% = 4.3%
ANSWER : REAL RISK FREE RATE = 4.3%
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