You Are Considering an Investment in a AAA-Rated U

question 99

Multiple Choice

You are considering an investment in a AAA-rated U.S.corporate 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.corporate bond pay?

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

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Definitions:

Emotional Stability

A personality trait characterized by the capability of handling stress, maintaining calmness, and not frequently experiencing negative emotions.

Conscientiousness

A characteristic of personality that involves being organized, reliable, and having a significant commitment to responsibilities.

Individual Differences

The variations or distinctions that exist among individuals in terms of abilities, personalities, beliefs, and other characteristics.

Behavioral Similarities

The extent to which individuals in a group or setting exhibit common patterns or types of behavior.