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7 August, 03:45

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?

a. 10%

b. 13%

c. 11%

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  1. 7 August, 06:14
    0
    Answer: 16%

    Explanation:

    Interest rate on long term treasury securities is calculated below using following formula:

    Interest rate = Real risk-free rate + inflation premium + default risk premium + liquidity premium + maturity risk premium

    = 3% + 8% + 2% + 2% + 1%

    = 16%

    Interest rate on long term treasury securities is 16%.
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