The Following Premiums Apply to an 8-Month Bond: Interest Rate

question 14

Multiple Choice

The following premiums apply to an 8-month bond: interest rate risk premium = 0.32 percent; liquidity premium = 0.44 percent; default premium = 1.15 percent; inflation premium = 2.44 percent; real rate = 3.20 percent.What is the expected nominal interest rate on an 8-month risky security given these values?

• A) 5.85 percent
• B) 6.45 percent
• C) 7.55 percent
• D) 8.31 percent
• E) 9.30 percent

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