The Following Premiums Apply to an 8-Month Bond: Interest Rate

question 54

Multiple Choice

The following premiums apply to an 8-month bond: interest rate risk premium = .32%; liquidity premium = .44%; default premium = 1.15%; inflation premium = 2.44%; real rate = 3.20%. What is the expected nominal interest rate on an 8-month risky security given these values?

• A)5.85%
• B)6.45%
• C)7.55%
• D)8.31%
• E)9.30%

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