The Following Premiums Apply to a 6-Month Bond: Interest Rate

question 26

Multiple Choice

The following premiums apply to a 6-month bond: interest rate risk premium = 0.22 percent; real rate = 3.50 percent; default premium = 0.12 percent; inflation premium = 1.45 percent.What is the expected difference in nominal interest rates between a 6-month risky security and a 6-month,default-free security?

• A) 0.12 percent
• B) 0.34 percent
• C) 0.37 percent
• D) 1.57 percent
• E) 1.60 percent

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