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:

Social Readjustment Rating Scale

A scale that measures the stress level of individuals by assigning values to different life events.

Change-related Stress

Stress experienced as a result of adapting to new or changing circumstances or environments.

Holmes and Rahe

Refers to the Holmes and Rahe Stress Scale, a tool used to measure the stress load we carry, and predict the risk of becoming ill as a result.

Internal Conflict

A psychological struggle within the mind of an individual, arising from opposing demands or impulses.