An analyst is evaluating securities in a developing nation where the inflation rate is very high....
An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free rate is 4.10% and inflation is expected to be 12.10% each of the next 4 years, what is the yield on a 4-year security with no maturity or default risk, but a liquidity risk premium of 1.60%?
Homework Answers
Yield = Real rF + Inflation Premium + Liquidity Risk Premium
= 4.10% + 12.10% + 1.60% = 17.80%
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An analyst is evaluating securities in a developing nation where
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