The Real Rate of Interest Is Expected to Be 3

question 88

Multiple Choice

The real rate of interest is expected to be 3%, and the expected rate of inflation for next year is expected to be 5.5%. If the default risk premium is 1.1 percentage points, and the seniority risk premium is 0.4 percentage points, what is the required return on a 1-year U.S. Treasury security?

• A) 9.6%
• B) 10.0%
• C) 8.5%
• D) 8.9%

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