You Are Considering an Investment in a U

question 156

Multiple Choice

You are considering an investment in a U.S.Treasury bond but you are not sure what rate of interest it should pay.Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; and,the default risk premium for AAA rated corporate bonds is 3.5%.What rate of interest should the U.S.Treasury bond pay?

• A) 8.5%
• B) 6.0%
• C) 5.0%
• D) 2.5%

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Definitions:

Points

An exact location in space, often represented in mathematics by coordinates.

Distance

The length between two points, often calculated using various formulas depending on the context, such as the distance formula in a coordinate plane.

Decimal Places

The number of digits to the right of the decimal point in a number.

Coordinates

A set of values that show an exact position on a graph, map, or in a space.