The Following Premiums Apply to a 3-Month Bond: Interest Rate

question 53

Multiple Choice

The following premiums apply to a 3-month bond: interest rate risk premium = .2%; real return = 2.4%; default premium = .8%; inflation premium = 1.2%. What is the expected nominal interest rate on a default-free security that has 3 months to maturity?

• A)1.9%
• B)2.0%
• C)2.1%
• D)3.3%
• E)3.6%

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