Solve Using the Addition and Multiplication Principles Together

question 109

Multiple Choice

Solve using the addition and multiplication principles together.
-

• A)75
• B)-150
• C)-75
• D)150

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Definitions:

Default Risk Premium (DRP)

The additional yield that investors demand to compensate for the risk of default by the issuer of a bond beyond the risk-free rate.

Liquidity Premium (LP)

Liquidity Premium refers to the extra return investors demand to compensate for investing in securities with low liquidity or those difficult to sell quickly at market value.

Real Risk-free Rate

The rate of return on a risk-free investment, after adjusting for inflation. It represents the true purchasing power gained from investing.

Real Risk-free Rate

The rate of return on an absolutely risk-free investment, adjusted for inflation, representing the minimum return investors would expect for any investment risk.