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14 December, 07:38

If the 10-year Treasury bond rate is 5.3 % , the inflation premium is 2.8 % , 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?

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  1. 14 December, 08:27
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    2.3%

    Explanation:

    If nominal interest rate (10-year Treasury bond rate) = real risk free interest rate + inflation premium + default risk premium + maturity risk premium + liquidity risk premium

    Then real risk free interest rate = nominal interest rate - inflation premium - default risk premium - maturity risk premium - liquidity risk premium

    real risk free interest rate = 5.3% - 2.8% - 0% - 0.2% - 0% = 2.3%
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