A Particular Security's Default Risk Premium Is 3

question 23

Multiple Choice

A particular security's default risk premium is 3%. For all securities, the inflation risk premium is 1.75% and the real interest rate is 4.2%. The security's liquidity risk premium is 0.35% and maturity risk premium is 0.95%. The security has no special covenants. Calculate the security's equilibrium rate of return.

• A) 8.50%
• B) 6.05%
• C) 10.25%
• D) 9.90%

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Definitions:

Ground Substance

The unstructured material that fills the space between cells in connective tissue, providing support and a medium for exchange.

Connective Tissues

A group of tissues in the body that maintain the form of the body and its organs and provide cohesion and internal support.

Stratified Columnar

Stratified columnar epithelium is a type of tissue composed of multiple layers of columnar cells, designed to protect or secrete substances in certain areas of the body.

Widespread Epithelium

A term not specifically recognized in medical terminology but suggests epithelial tissue that covers a large or broad area.