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You have determined the following data for a given bond: Real risk-free rate (r*) = 3%;...

  1. You have determined the following data for a given bond: Real risk-free rate (r*) = 3%; inflation premium = 8%; default risk premium = 2%; liquidity premium = 2%; and maturity risk premium = 1%. What is the nominal risk-free rate, rrf)?

Refer to Problem 1. What is the interest rate on short-term corporate bonds, of the relevant maturity?

Solutions

Expert Solution

Nominal risk free rate=3%+8%=11%

Interest rate on short term corporate bonds=11%+2%+2%=15%

jeff jeffy answered 2 years ago
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